The Political Economy of Global Financial Liberalisation in Historical Perspective

THE ENCYCLOPEDIA OF FINANCIAL GLOBALIZATION, Gerard Caprio, ed., Elsevier, 2012

41 Pages Posted: 18 Mar 2012

See all articles by Rui Esteves

Rui Esteves

Graduate Institute of International and Development Studies (IHEID)

Date Written: June 1, 2011

Abstract

This paper is a first attempt to garner the theory and evidence on the political economy of the first wave of financial liberalisation during the nineteenth and early twentieth century, and of its demise after World War I. Not everyone gained from the process of globalisation (of trade, labour, and finance), which brought about important changes in the structure of the economy and the distribution of income in nations across the world. This paper explores how the economic incentives generated by these dislocations translated, through the political system, into choices about openness to foreign capital and financial integration. The period before World War I is remarkable by the almost absence of restrictions on cross-border capital flows, which may explain the little attention it has received in the historical literature, compared to the extensive study of trade protectionism in this period. After the War, many countries experimented with capital controls which varied in nature and intensity and were intensified during the Depression. Despite the attempt made here to reconcile these stylized facts to models of political economy, the analysis requires a better empirical foundation and some suggestions for further research are also proposed.

Keywords: political economy, financial liberalisation, capital controls, pre-war

JEL Classification: F4, G18, N20

Suggested Citation

Esteves, Rui, The Political Economy of Global Financial Liberalisation in Historical Perspective (June 1, 2011). THE ENCYCLOPEDIA OF FINANCIAL GLOBALIZATION, Gerard Caprio, ed., Elsevier, 2012, Available at SSRN: https://ssrn.com/abstract=2024992

Rui Esteves (Contact Author)

Graduate Institute of International and Development Studies (IHEID) ( email )

PO Box 136
Geneva, CH-1211
Switzerland

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