American treasure and the decline of Spain

Spain was one of the world’s richest countries around 1500. Two centuries later, it was a backwater. This column discusses the long-run impact of the influx of precious metals from the New World on the economic development of Spain. Using an augmented synthetic control methodology, the authors show that in the long run the growth and price level trajectories evolved dramatically different in Spain relative to other Western European nations. Spain initially boomed but suffered from high inflation and became poorer as the result of a resource curse which had economic and political dimensions.