could no longer be an entrepôt for the produce of Brazil. Pedreira (1993) suggests that the
loss of Brazil implied an upper bound loss of 8% of GDP. A widespread consensus views
Portugal as being now confined to the role of supplier of foodstuffs and raw materials,
with no opportunities to specialise within the more dynamic industrial sector. However,
since the old colonial system did not bring Portugal to the verge of modern
industrialisation, its breakdown can hardly be blamed for the country's failure to
subsequently industrialise.
In contrast to Great Britain and the thirteen North American colonies, where
commercial links were immediately and vigorously renewed after their independence
(Shepherd and Walton 1976), Spain and the new Latin American republics practically cut
ties (except for the trade using Cuba as an entrepôt). From the beginning of the war with
Britain in October 1796, Spain maintained almost no link with the colonies for more than
two decades. The subsequent decline in domestic exports (roughly 25% between 1784/96
and 1815/20) can be attributed almost exclusively to the fall in colonial commerce (which
shrank by 40%). The consequence was the end of the long-standing equilibrium
distribution of domestic exports between the colonies and Europe (roughly one-third and
two-thirds, respectively), and the establishment of a new distribution that continued
throughout the 19th century (with foreign markets absorbing four-fifths). Retained
imports of colonial goods for domestic consumption (which had represented one-third of
total retained imports) were halved , but this was offset by imports from Europe. The
collapse of trade with the empire was particularly significant for services (financial,
insurance, transportation), as is revealed by the contraction of real re-exports by three-
fifths between 1784/96 and 1815/20. The Spanish balance of trade also felt the effects of
colonial independence. Before the loss of empire, Spain had a deficit on current account
with foreign countries that was balanced by a corresponding surplus in colonial trade.
With colonial emancipation this balancing mechanism disappeared, with deflationary
consequences for the domestic economy. Fortunately, a favourable terms of trade -
resulting from an improvement vis-à-vis Europe, more than matching a deterioration with
respect to the colonies -- increased the purchasing power per unit of exports by 20%
between 1784/96 and 1815/20, allowing Spain to avoid further deterioration in the
current account balance.
17