Panama’s Economic history – part 1
Since the early 1500s, Panamanians have relied on the country’s comparative advantage¡ªits geography. Exploitation of this advantage began soon after the Spanish arrived, when the conquistadors used Panama to transship gold and silver from Peru to Spain. Ports on each coast and a trail between them handled much of Spain’s colonial trade from which the inhabitants of the port cities prospered. This was the beginning of the country’s historical dependence on world commerce for prosperity and imports. Agriculture received little attention until the twentieth century, and by the 1980s had¡ªfor much of the population¡ªbarely developed beyond indigenous Indian techniques. Industry developed slowly because the flow of goods from Europe and later from North America created a disincentive for local production.
Panama has been affected by the cyclical nature of international trade. The economy stagnated in the 1700s as colonial exchange via the isthmus declined. In the mid-1800s, Panama’s economy boomed as a result of increased cargo and passengers associated with the California gold rush. A railroad across the isthmus, completed in 1855, prolonged economic growth for about fifteen years until completion of the first transcontinental railroad in the United States caused trans-isthmian traffic to decline. France’s efforts to construct a canal across the isthmus in the 1880s and efforts by the United States in the early 1900s stimulated the Panamanian economy.
