Foreign Capital and Economic Growth in the First Era of Globalization

54 Pages Posted: 5 Nov 2007 Last revised: 8 Aug 2010

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Christopher M. Meissner

University of Cambridge - Faculty of Economics and Politics; National Bureau of Economic Research (NBER)

Date Written: November 2007

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.

Suggested Citation

Bordo, Michael D. and Meissner, Christopher M., Foreign Capital and Economic Growth in the First Era of Globalization (November 2007). NBER Working Paper No. w13577. Available at SSRN: https://ssrn.com/abstract=1027196

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Christopher M. Meissner

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

HOME PAGE: http://www.econ.cam.ac.uk/faculty/meissner/index.htm

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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