Book contents
- Frontmatter
- Contents
- Foreword
- Publication History
- I Theoretical Discussions
- 1 Financial Markets and Economic Development: Myths and Institutional Reality
- 2 External Financing for Development and International Financial Instability
- 3 Capital Flows: Globalization of Production and Financing Development
- 4 Some Risks and Implications of Financial Globalization for National Policy Autonomy
- 5 Two Views on the Obstacles to Development
- 6 Can We Create a Stable International Financial Environment that Ensures Net Resource Transfers to Developing Countries?
- 7 Natural Instability of Financial Markets
- 8 Trying to Serve Two Masters: The Dilemma of Financial Regulation
- II Finance for Development
- III The Crisis in the US and the EU
- Index
3 - Capital Flows: Globalization of Production and Financing Development
from I - Theoretical Discussions
Published online by Cambridge University Press: 05 November 2014
- Frontmatter
- Contents
- Foreword
- Publication History
- I Theoretical Discussions
- 1 Financial Markets and Economic Development: Myths and Institutional Reality
- 2 External Financing for Development and International Financial Instability
- 3 Capital Flows: Globalization of Production and Financing Development
- 4 Some Risks and Implications of Financial Globalization for National Policy Autonomy
- 5 Two Views on the Obstacles to Development
- 6 Can We Create a Stable International Financial Environment that Ensures Net Resource Transfers to Developing Countries?
- 7 Natural Instability of Financial Markets
- 8 Trying to Serve Two Masters: The Dilemma of Financial Regulation
- II Finance for Development
- III The Crisis in the US and the EU
- Index
Summary
Introduction
Foreign investment played a major role in the industrial development of Western European economies in the 18th century and foreign capital provided financing for the development of the United States economy in the 19th century. The international flow of funds shifted to the South American continent during the 19th century, and by the 20th century American investors had joined Europeans in financing the industrialization of developing countries. The process of economic development has been accompanied by international investment flows in almost all countries and, despite what would be judged today as impossible risks, private international capital flows were an integral part of this process. The lending was not without difficulty, as investment booms in Latin America, for example in the 1820s, 1850s, 1880s and 1920s, were all followed by generalized defaults and reschedulings. Table 3.1 shows conditions in 1913 which were more or less typical, with Europe providing about three-quarters of international lending and the Americas absorbing a bit less than half of that amount. After each crisis domestic growth rates fell, imports were cut back and exports were expanded to produce payments surpluses, and after about a generation lending resumed. This process continued through the interwar period, when most of the loans which failed in the Great Depression were contracted.
Although there was no intent to stem the flow of international capital for development purposes, convertibility of national currencies under the Bretton Woods agreements only applied to current account exchanges, not capital investments.
- Type
- Chapter
- Information
- Economic Development and Financial InstabilitySelected Essays, pp. 41 - 62Publisher: Anthem PressPrint publication year: 2014