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Foreign Capital and Economic Growth in the First Era of Globalization

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  • Michael D. Bordo
  • Christopher M. Meissner

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 income volatility via financial crises. Crises also decreased growth rates of income per capita significantly below trend for at least two years leading to important short term output losses. 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. We discuss some possibilities that can explain this finding.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13577.

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Date of creation: Nov 2007
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Publication status: published as Michael Bordo and Christopher Meissner. “Foreign Cap ital, Financial Crises and Income in the first Era of Globalization” European Review of Economic History October 2010
Handle: RePEc:nbr:nberwo:13577

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Citations

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Cited by:
  1. Michael D. Bordo, 2007. "Growing Up to Financial Stability," NBER Working Papers 12993, National Bureau of Economic Research, Inc.
  2. Michael D. Bordo & David Hargreaves & Mizuho Kida, 2010. "Global shocks, economic growth and financial crises: 120 years of New Zealand experience," NBER Working Papers 16027, National Bureau of Economic Research, Inc.
  3. Rui Esteves, 2011. "The Political Economy of Global Financial Liberalisation in Historical Perspective," Economics Series Working Papers Number 89, University of Oxford, Department of Economics.
  4. Moritz Schularick & Thomas M Steger, 2010. "Financial Integration, Investment, and Economic Growth: Evidence from Two Eras of Financial Globalization," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 756-768, November.
  5. Bank for International Settlements, 2009. "Capital flows and emerging market economies," CGFS Papers, Bank for International Settlements, number 33.
  6. Michael Bordo & David Stuckler & Chris Meissner, 2009. "Foreign Currency Debt, Financial Crises and Economic Growth: A Long Run View," Working Papers, University of California, Davis, Department of Economics 921, University of California, Davis, Department of Economics.
  7. Eduardo A. Cavallo & Alberto Cavallo, 2008. "¿Son Buenas las Crisis para el Crecimiento a Largo Plazo? El Papel de las Instituciones Políticas," Research Department Publications, Inter-American Development Bank, Research Department 4590, Inter-American Development Bank, Research Department.
  8. Eduardo A. Cavallo & Alberto F. Cavallo, 2008. "Are Crises Good for Long-Term Growth?: The Role of Political Institutions," IDB Publications 6517, Inter-American Development Bank.
  9. Barbara Meller, 2013. "The two-sided effect of financial globalization on output volatility," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 149(3), pages 477-504, September.
  10. Emanuel Kohlscheen, 2010. "Domestic vs external sovereign debt servicing: an empirical analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 15(1), pages 93-103.
  11. Vadlamannati, Krishna Chaitanya, 2008. "Do Elections Slow Down Economic Globalization Process In India? It’S Politics Stupid !," MPRA Paper 10139, University Library of Munich, Germany.

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