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Alvaro Santos Pereira: ‘The Economic Impact of the Lisbon 1755 Earthquake’ Department of Economics University of York York, YO10 5DD United Kingdom firstname.lastname@example.org Abstract Besides its relatively well-known tragic human loss, the 1755 Lisbon earthquake had a significant economic impact in the Portuguese economy. However, in spite of being recognized as a tragic watershed in history for being the largest recorded natural catastrophe in Europe, the existing literature has tended to downplay the role of the earthquake for Portugal’s economic woes in the late 18th century. Estimates of the earthquake are also mostly sketchy and somewhat relying on anecdotal data. This paper tries to remedy this lacuna in the literature by providing estimates of the economic impact of the 1755 earthquake on the most important aggregate variables of the Portuguese economy, such as GDP, GDP per capita, wages, prices, money growth, the trade balance, and the government’s fiscal situation. The direct cost of the 1755 earthquake is estimated to be between 8 and 10 percent of the Portuguese gross domestic product. The recovery from earthquake also led to a rise in the skilled premium of skilled workers (especially carpenters, builders and iron workers) compared with other workers. Consequently, the wage spread rose and wage inequality increased in the decades following 1755. The earthquake also had substantial short- and medium-term consequences for the Portuguese trade balance. In the short run, there was a substantial increase in the volume of imports both from Portugal’s main trading partners as well as from other countries (such as Sweden and Russia), and a considerable decline in exports. These imports included not only aid-related items, but also commodities needed for the reconstruction, especially wood and iron. Consequently, there was a very substantial increase in the Portuguese trade deficit. Additionally, the earthquake gave rise to increasing pressures to the already strained fiscal situation of the Portuguese government. The greater fiscal restraint and the burgeoning trade deficit led to an unsustainable economic situation, and hence Pombal’s government was forced to act in order to raise revenues and to decrease the trade deficit. Thus, at least indirectly, the economic consequences of the earthquake were a crucial reason for the major reforms of fiscal institutions in 1761 and Pombal’s aggressive industrial policy (“Fomento industrial”). All in all, the findings of this paper suggest that the earthquake had a greater impact on the Portuguese economy than the existing literature indicates. Thus, the long-lasting scars of the 1755 earthquake included a significant economic element. Keywords: Lisbon 1755 earthquake; economic impact
"Alvaro Santos Pereira The Economic Impact of the Lisbon 1755 "