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The Curse of Moctezuma: American Silver and the Dutch Disease, 1501-1650

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  • Mauricio Drelichman

    (The University of British Columbia)

Abstract

This study formalizes and empirically tests the conjecture that the discovery of large silver reserves in its American colonies triggered in Spain a phenomenon known as the Dutch disease,diverting factors of production to non-traded goods industries and undermining the Spanishcomparative advantages in the Early Modern Age. I develop an open-economy model to mimic the economic conditions in Spain in the wake of the silver discoveries, which predicts anincrease in the relative price of non-traded goods following a positive wealth shock. I thenconstruct price indexes for traded and non-traded goods using Earl Hamilton's price series and new consumption baskets. Using a Markov- switching regression model, I identify a strong andpersistent increase in the relative price of non-traded goods coinciding with the silverdiscoveries, lasting for almost three decades and reversing itself only after the 1575 and 1579 crown bankruptcies. These findings largely support the Dutch Disease hypothesis.

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Bibliographic Info

Paper provided by EconWPA in its series Economic History with number 0404001.

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Length: 44 pages
Date of creation: 13 Apr 2004
Date of revision:
Handle: RePEc:wpa:wuwpeh:0404001

Note: Type of Document - pdf; pages: 44
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Web page: http://128.118.178.162

Related research

Keywords: Early Modern Spain; Dutch Disease; Prices; Consumption Baskets; Switching Regression;

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References

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Cited by:
  1. Drelichman, Mauricio, 2005. "All that glitters: Precious metals, rent seeking and the decline of Spain," European Review of Economic History, Cambridge University Press, vol. 9(03), pages 313-336, December.

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