American treasure and the decline of Spain

Spain was one of the world’s richest countries around 1500. Two centuries later it was a backwater. We rely on a synthetic control methodology to study the long-run impact of the influx of silver from the New World since 1500 for the economic development of Spain. Compared with a synthetic counterfactual, the price level increased by up to 200% by the mid-seventeenth century. Spain’s GDP per capita outperformed other European nations for around a century, but by 1750, GDP per capita was around 40% lower than it would have been if Spain had not been the first-stage receiver of the American treasure.