Working Paper: NBER ID: w3411
Authors: Barry Eichengreen
Abstract: Over the past century, the world economy has passed through a succession of phases characterized by very different levels of international capital flows. This paper asks what accounts for these dramatic shifts in the extent of capital movements across national borders, Three categories of explanation are considered. The first emphasizes the policy regime, attributing the unusual extent of capital flows prior to 1914 to the operation of the international gold standard. The second focuses on the stages-of-indebtedness sometimes thought to characterize the process of economic development. The third ascribes changes in the extent of capital flows to the boom-and-bust cycles through which international capital markets are thought to pass. Though each approach contributes something to our understanding of the phenomenon, none is totally satisfactory. I therefore suggest an alternative explanation, which lays stress on the increase in the magnitude of real interest rate and reel exchange race variability char has occurred over the last 100 years.
Keywords: foreign lending; international capital flows; gold standard; economic development; capital markets
JEL Codes: F21; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| international gold standard (F33) | capital mobility (F20) |
| developmental stages (O11) | international lending behavior (F34) |
| lending cycles (G21) | capital markets (G10) |
| initial borrowing (H74) | higher returns on investment (G11) |
| higher returns on investment (G11) | maturity as capital exporters (F21) |
| financial innovations (O16) | excessive lending (G21) |
| excessive lending (G21) | unsustainable levels (Q56) |
| unsustainable levels (Q56) | market correction (G18) |