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Alvaro Santos Pereira The Economic Impact of the Lisbon 1755


									Alvaro Santos Pereira: ‘The Economic Impact of the Lisbon 1755 Earthquake’

Department of Economics
University of York
York, YO10 5DD
United Kingdom

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
        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

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