A recurring theme in the Iberian literature is whether Portugal and Spain did not
develop because, in building their empires, the metropolitan economy was disregarded.
Did empires represent a significant opportunity cost, absorbing resources that could have
been allocated to productive investment (Fontana 1991), or were such costs a prerequisite
for economic development? In order to realise the potential inherent in the discovery of
the resource-abundant but labour-scarce Americas, the Iberian powers required
continuous investment in social overhead capital (ports, roads, housing, internal
transportation, and oceanic shipping) and the establishment of new political and
commercial organisations. This task was mainly undertaken by Iberians, while benefiting
the rest of Europe, for at least 150 years after Columbus (O'Brien and Prados de la
Escosura 1998). In the case of Portugal, it might be argued that emigration deprived the
country of manpower, skills and entrepreneurship, since emigrants were young males,
and more literate and ambitious than average. On the other hand, emigration made
possible the colonisation of new territories, opening new markets and providing luxuries
and tropical groceries at lower cost. Furthermore, emigration eased economic conditions
in the more densely populated areas, especially in the northwest.
Ironically, in the light of this literature, it may be the flow of resources from the
Americas to Iberia that did the most damage to the Spanish and Portuguese economies in
the long run. First, as we have already seen, bullion flows strengthened absolutist
monarchies and central governments, with damaging political and economic
consequences. Second, the inflow of specie, gold in Portugal and silver in Spain, may
have provoked a "Dutch disease" of sorts, damaging the competitiveness of local
manufacturing industries (Forsyth and Nicholas 1983; Drelichman 2005).
One way of assessing the importance of empire to the Iberian economies is to
explore what happened after the loss of those empires. By 1827, once Brazil had severed
her links to Portugal and declared full independence, real Portuguese domestic exports
represented just two thirds of their average level in 1796/1806. However, this conceals a
switch from industrial to agricultural exports, with Portugal reorienting its economy
towards Britain by selling its primary produce in exchange for manufactures, within the
context of improving terms of trade. Trade in services also suffered, with re-exports
contracting by one fifth in real terms between the same dates. For example, Portugal
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