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Foreign capital, financial crises and incomes in the first era of globalization

Published online by Cambridge University Press:  28 September 2010

MICHAEL D. BORDO  and
CHRISTOPHER M. MEISSNER
MICHAEL D. BORDO
Affiliation:
Rutgers University and NBER
CHRISTOPHER M. MEISSNER
Affiliation:
University of California, Davis and NBER, Department of Economics, University of California, Davis, One Shields Avenue, Davis, CA 95616, USA, cmm@ucdavis.edu
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Abstract

We explore the association between income and international capital flows between 1880 and 1913. Capital inflows are associated with higher incomes per capita in the long run, but capital flows also brought incomes down in the short run via financial crises. Countries just barely made up for these losses over time, so that there is no conditional long-run income loss or gain for countries that experienced crises. This is in contrast to the recent wave of globalization when capital importing countries that experienced a crisis seemed to grow relatively faster over fixed periods of time. Some countries avoided crises and were able to raise incomes with foreign capital. We discuss some possibilities why.

Type
Research Article
Information
European Review of Economic History , Volume 15 , Issue 1 , April 2011 , pp. 61 - 91
Copyright
Copyright © European Historical Economics Society 2010

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