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Does Financial Integration Spur Economic Growth? New Evidence from the First Era of Financial Globalization


  • Moritz Schularick
  • Thomas Steger


Does international financial integration boost economic growth? The question has been discussed controversially for a long time. As of yet, robust evidence for a positive impact is lacking (Edison et al., 2002). However, there is substantial narrative evidence from economic history that highlights the contribution European capital made to economic growth of peripheral economies before 1914. We have compiled the first comprehensive data set to test this hypothesis. The main finding is that there was indeed a significant and robust growth effect. Our theoretical explanation stresses property rights protection as a prerequisite for the standard neoclassical model to work properly.

Suggested Citation

  • Moritz Schularick & Thomas Steger, 2006. "Does Financial Integration Spur Economic Growth? New Evidence from the First Era of Financial Globalization," CESifo Working Paper Series 1691, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1691

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    Cited by:

    1. Boyle, Glenn, 2009. "Capital Market Integration: A Review of the Issues and an Assessment of New Zealand's Position," Working Paper Series 4034, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
    3. Michael D. Bordo & Christopher M. Meissner, 2007. "Foreign Capital and Economic Growth in the First Era of Globalization," NBER Working Papers 13577, National Bureau of Economic Research, Inc.
    4. Valente, Simone, 2008. "Intergenerational transfers, lifetime welfare, and resource preservation," Environment and Development Economics, Cambridge University Press, vol. 13(01), pages 53-78, February.
    5. Douglas W. Arner & Paul Lejot & Wei Wang, 2010. "Governance and Financial Integration in East Asia," Chapters,in: Asian Regionalism in the World Economy, chapter 6 Edward Elgar Publishing.
    6. Bordo, Michael D., 2008. "Growing up to Financial Stability," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-17.
    7. Katarzyna Sum, 2012. "The integration of the financial markets and growth evidence from a global cross-country analysis," Bank i Kredyt, Narodowy Bank Polski, vol. 43(3), pages 47-70.
    8. Di Maria, Corrado & Valente, Simone, 2006. "The Direction of Technical Change in Capital-Resource Economies," MPRA Paper 1040, University Library of Munich, Germany.
    9. Evans, Olaniyi, 2013. "International Financial Integration and The Nigerian Economic Performance: a Var Modeling Approach," MPRA Paper 52459, University Library of Munich, Germany.
    10. Simone Valente, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," CER-ETH Economics working paper series 06/53, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

    More about this item


    international financial integration; economic growth; first era of globalization;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F30 - International Economics - - International Finance - - - General
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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