Working Paper: NBER ID: w21349
Authors: Wolfgang Keller; Carol H. Shiue; Xin Wang
Abstract: Based on the most comprehensive grain prices available, we employ a storage model to estimate consistent interest rates and compare capital market development in Britain and China. Interest rates for Britain were lower than China’s on average by about three percentage points from 1770 to 1860. Regional capital market integration in the Yangzi Delta comes close to the British average at distances below 200 kilometers, but at larger distances interest rate correlations in Britain are twice those of the Delta, and three or more times as high as elsewhere in China. Overall, our results suggest capital market divergence at an early date.
Keywords: capital markets; China; Britain; grain prices; economic divergence
JEL Codes: G12; N10; N13; N25; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Development of British capital markets (N23) | Lower interest rates in Britain (E43) |
| Lower interest rates in Britain (E43) | More developed capital market compared to China (G19) |
| Regional capital market integration in the Yangzi Delta approaches British average (G19) | Higher interest rate correlations in Britain (E43) |
| Gap in capital market integration existed as early as the late 18th century (N23) | Economic divergence between Britain and China (N15) |