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Home Biases, 19th Century Style

  • Marc Flandreau

    (Centre for Finance and Development)

This paper discusses the existence of 'home' biases in the 19th century global capital market, whereby colonies appear to have received a 'disproportionate' amount of capital from their metropolis. Starting from a discussion of the Bulow Rogoff (1989) problem, we argue that imperial links provided a natural institutional framework to make pre-commitment credible by ensuring an adequate degree of willingness to pay. This was not because imperial rule provided coercion or punishment, but rather because it supplied a legal framework that effectively suppressed the « sovereign » nature of colonial debts. We conclude that the greater facility with which capital migrated in the 19th century has much to do with the fact that colonies were more akin to the 'regions' of modern countries.

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Paper provided by Sciences Po in its series Sciences Po publications with number n°5398.

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Date of creation: Dec 2005
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Handle: RePEc:spo:wpmain:info:hdl:2441/601
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  1. Michael D. Bordo & Marc Flandreau, 2003. "Core, Periphery, Exchange Rate Regimes, and Globalization," NBER Chapters, in: Globalization in Historical Perspective, pages 417-472 National Bureau of Economic Research, Inc.
  2. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  3. Jeremy I. Bulow & Kenneth Rogoff, 1986. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
  4. Michael A. Clemens & Jeffrey G. Williamson, 2004. "Wealth bias in the first global capital market boom, 1870-1913," Economic Journal, Royal Economic Society, vol. 114(495), pages 304-337, 04.
  5. repec:cup:cbooks:9780521633178 is not listed on IDEAS
  6. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  7. Alberto Alesina & Enrico Spolaore, 1995. "On the Number and Size of Nations," NBER Working Papers 5050, National Bureau of Economic Research, Inc.
  8. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
  9. Kris James Mitchener & Marc D. Weidenmier, 2005. "Supersanctions and Sovereign Debt Repayment," NBER Working Papers 11472, National Bureau of Economic Research, Inc.
  10. Tamim Bayoumi, 1990. "Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior?," IMF Staff Papers, Palgrave Macmillan, vol. 37(2), pages 360-387, June.
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