The Carnation Revolution and economic crisis: A synthetic control analysis (1974-2000)

On 25 April 1974, the “Carnation Revolution” toppled Western Europe's oldest dictatorship, Portugal's Estado Novo . Political instability ensued, leading to a wage explosion, expropriations, and the collapse of an empire that brought back half a million repatriates. As a result, the Portuguese economy slowed from the high growth it had experienced in the 1950s and ’60s. However, disentangling the effects of the revolution from those of the broader international crisis of the 1970s is challenging. To address this, we apply the synthetic control method and find that the Carnation Revolution, along with the ensuing instability, caused a negative structural break that persistently reduced GDP per capita. By 1976, GDP per capita was almost 15% lower than the counterfactual estimate. This coincided with a decline in the investment-to-employment ratio and higher current account deficits than those observed in comparable countries.