The Portuguese Slump and Crash and the Euro Crisis

Ricardo Reis

No 9591, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Between 2000 and 2012, the Portuguese economy grew less than the United States during the Great Depression and less than Japan during its lost decade. This paper asks why this happened, with a particular focus on the slump between 2000 and 2007. It describes the main facts of Portugal's recent economic history, evaluates some possible explanations for its dismal performance, and proposes a new hypothesis based on the misallocation of abundant capital flows from abroad. I put forward a model of credit frictions to show that if financial integration exceeds financial deepening, productivity will fall, generating a slump as relatively unproductive firms in the nontradables sector expand at the expense of more productive tradables firms. This explanation can also potentially account for the similarities and the differences between Portugal on the one hand, and Ireland and Spain on the other, during this period, and for some features of the crash in Portugal after 2010.

Keywords: Eurozone; Financial imperfections; Sudden stop (search for similar items in EconPapers)
JEL-codes: E32 E65 F32 F43 N14 O52 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (211)

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Journal Article: The Portugese Slump and Crash and the Euro Crisis (2013)
Working Paper: The Portuguese Slump and Crash and the Euro Crisis (2013)
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