The Economic Consequences of the April 25th Revolution

Abstract

This chapter presents an interpretation of the economic experience of Portugal since the revolution. It shows that the enduring consequence of April 25 has been the transformation of Portugal into what one might call a politicized market economy. In any market economy prices of goods and factors perform the dual role of allocating resources and determining the distribution of incomes. A unique combination of drastic internal and external shocks has turned Portugal into a testing ground for social and economic theories. The chapter provides some background on Portuguese economic development before the revolution. It aims to develop an analytical framework based on two “strategic variables”-output and the real wage-whose evolution. In 1973 Portugal’s economy was fairly typical of the group of middle income nations sometimes referred to as newly industrializing countries or “nics.” The possible kinds of disequilibrium are illustrated by the “zones of economic unhappiness” surrounding the equilibrium point.

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