NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Foreign Capital and Economic Growth in the First Era of Globalization

Michael D. Bordo, Christopher M. Meissner

NBER Working Paper No. 13577
Issued in November 2007
NBER Program(s):   DAE   IFM   ITI

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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This paper was revised on May 21, 2010

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Document Object Identifier (DOI): 10.3386/w13577

Published: 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

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