Development Centre Studies « The Making of Global Finance 1880-1913 Development Centre Studies This book traces the roots of global financial integration in the first “modern” era of globalisation from 1880 to 1913. It analyses the direction, destinations and origins, of international financial flows in order to determine the domestic policy choices that either attracted or deterred such flows to developing countries. The Making The book deposes the idea that the gold standard and other institutional arrangements were the key to attracting foreign investment, pointing to the of Global Finance stability and probity of political systems as much more important. One of the major conclusions is that the successful management of international financial integration depends primarily on broad institutional and political factors, as well as 1880-1913 on financial policies, rather than simply opening or closing individual economies to the international winds. The Making of Global Finance 1880-1913 can serve as a valuable tool to current- day policy dilemmas by using historical data to see which policies in the past led to enhanced international financing for development. It also includes historical data that will interest all scholars of economics and economic history, as well as the casual reader. By Marc Flandreau and Frédéric Zumer OECD's books, periodicals and statistical databases are now available via www.SourceOECD.org, The Making of Global Finance 1880-1913 our online library. This book is available to subscribers to the following SourceOECD themes: Development Finance and Investment/Insurance and Pensions General Economics and Future Studies Ask your librarian for more details of how to access OECD books on line, or write to us at [email protected] This work is published under the auspices of the OECD Development Centre. The Centre promotes comparative development analysis and policy dialogue, as described at: www.oecd.org/dev www.oecd.org ISBN 92-64-01534-5 -:HSTCQE=UVZXYU: 41 2004 03 1 P DEVELOPMENT CENTRE STUDIES The Making of Global Finance 1880-1913 By Marc Flandreau and Fédéric Zumer DEVELOPMENT CENTRE OF THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: –to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; –to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and –to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak Republic (14th December 2000). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention). The Development Centre of the Organisation for Economic Co-operation and Development was established by decision of the OECD Council on 23rd October 1962 and comprises twenty-two member countries of the OECD: Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Korea, Luxembourg, Mexico, the Netherlands, Norway, Portugal, Slovak Republic, Spain, Sweden, Switzerland, as well as Chile since November 1998 and India since February 2001. The Commission of the European Communities also takes part in the Centre’s Governing Board. The purpose of the Centre is to bring together the knowledge and experience available in member countries of both economic development and the formulation and execution of general economic policies; to adapt such knowledge and experience to the actual needs of countries or regions in the process of development and to put the results at the disposal of the countries by appropriate means. The Centre is part of the “Development Cluster” at the OECD and enjoys scientific independence in the execution of its task. As part of the Cluster, together with the Centre for Co-operation with Non-Members, the Development Co-operation Directorate, and the Sahel and West Africa Club, the Development Centre can draw upon the experience and knowledge available in the OECD in the development field. THE OPINIONS EXPRESSED AND ARGUMENTS EMPLOYED IN THIS PUBLICATION ARE THE SOLE RESPONSIBILITY OF THE AUTHORS AND DO NOT NECESSARILY REFLECT THOSE OF THE OECD OR THE GOVERNMENTS OF THEIR MEMBER COUNTRIES. * * * Publié en français sous le titre : Les origines de la mondialisation financière 1880-1913 © OECD 2004 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre français d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, tel. (33-1) 44 07 47 70, fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: www.copyright.com. All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France. Foreword The 2001-2002 OECD Development Centre Work Programme, Globalisation and Governance, revealed a number of transversal issues relevant to virtually all the themes. This book is the result of steps to cover some of those issues. 3 Acknowledgements by the Authors* The research summarised in this monograph was initiated several years ago, in 1995. A variety of institutions and colleagues have supported it materially and intellectually throughout. We benefited from financial support from the Observatoire Français des Conjonctures Économiques (O.F.C.E.) in Paris, as well as from a variety of grants from the French Ministry of Research. It is a pleasure to acknowledge this debt. We also received much feedback from numerous colleagues who supported us through their comments, criticism and encouragement, and in many other ways too. For their friendly advice and continued discussion we especially wish to thank Amiya Kumar Bagchi, Michael Bordo, Steve Broadberry, Forrest Capie, Filippo Ceserano, Daniel Cohen, Jerry Cohen, Marcello de Cecco, Barry Eichengreen, Luca Einaudi, Niall Ferguson, Curzio Giannini, Maria Alejandra Irigoin, Patrick O’Brien, Leandro Prados della Escosura, Jaime Reis, Albrecht Ritschl, Emma Rothschild, Anna Schwartz and Giuseppe Tattara. The database presented here involved a massive effort. For their help with supplying directions to appropriate sources we thank Michael Bergman, Felix Butschek, Olga Christodoulaki, Jean-Pierre Dormois, Paul Gregory, Ingrid Henriksen, Lars Jonung, Anton Kausel, John Komlos, Pablo Martin Acena, Andreas Resch, Max-Stefan Schulze, Jan-Pieter Smits, Giuseppe Tattara, Bruno Théret, Jan-Luiten Van Zanden, André Villella and Vera Zamagni. Special gratitude is due to Roger Nougaret, head of the Archives at Crédit Lyonnais, for pointing out to us that the Lyonnais’ country- assessment files were possibly outstanding sources to reconstruct macroeconomic indicators. When this turned out to be the case indeed, Roger kindly and patiently made all the material we needed available for extensive periods, thus tremendously facilitating our efforts. As we stretched his patience and that of his team he kept helping out in the kindest way. The help of several students is gratefully acknowledged. We especially thank Jérôme Legrain for his work on the Statesman’s Year Book and Ignacio Briones for computing the exchange-rate volatility indices. Juan Flores contributed by helping out with the Latin American countries. An expanded database for Latin America will shortly become available as part of his ongoing dissertation. 4 The present monograph was presented in a variety of places, including most prominently the OECD Development Centre seminar (Paris, April 2002) which proved essential in bringing the project to fruition. In addition, we are grateful to participants to the Universidad Carlos III economic history seminar (Madrid, May 2002), the Humboldt Universität Departmental seminar (Berlin, May 2002), the Venice International University Summer School (Venice, September 2002), the Cambridge University “Economics and History” Lectures (Cambridge, February 2003), the Banca d’Italia economic history seminar (Rome, March 2003) and the OFCE Convergences in Economic History Seminar in Paris (April 2003). The suggestions and reactions of the audiences proved most useful in fostering our thinking. Finally, for their detailed remarks on earlier drafts we especially