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The Belle Epoque of International Finance: French Capital Exports, 1880‐1914
If you have a question about this talk, please contact D'Maris Coffman.
This paper addresses the question of what determines international capital flows in a period of heightened financial globalization. It comes in the wake of an extensive literature on the first period of financial globalization (Woodruff 1966, Fishlow 1985, Obstfeld and Taylor 2004, Clemens and Williamson 2005, Goetzman and Ukhov 2005, to name a few). The empirical results in this literature bare a remarkable similarity to the factors identified in contemporary studies of the direction of capital flows (Portes and Rey 2005, Alfaro et al. 2005; Wei and Wu 2002). Both literatures have identified three main sets of factors that condition the direction of foreign investment: long term growth potential (“fundamentals”), capital market imperfections, and institutional quality.
In previous research, I compared the patterns of British and German capital exports, and identified a commonality of factors – privileging long‐term growth potential and quality of domestic institutions – that are still identified as the major drivers of foreign capital (Esteves 2007). In this study I extend the analysis to the consideration of the second largest source of foreign finance before 1914. The pattern of French capital exports has been studied in a number of classical (Marnata 1973, Lévy‐Leboyer 1977) and more recent contributions (Marseille 2005, Hautcouer and Romey 2006, Hautcouer 2007, Parent and Rault 2004). Relative to these, the present project has the advantage of drawing evidence from an extensive and systematic dataset of individual securities traded in the French markets between 1880 and 1913.
The literature up to now has been relying on aggregate estimates of capital stocks. Although informative, these sources are not appropriate to identify the drivers of the composition of the French international portfolio. For that we need a panel of foreign capital flows, which I construct from a French tax source (the Commission des valeurs mobilières ), which tracked down the French holdings of individual securities every 3 years since their issue. The total dataset encompasses thousands of securities followed over 34 years (1880‐1914). The structure of this dataset also has the advantage over previous panel studies (Clemens and Williamson 2005) of using information on the actual holdings of securities over their lifetimes and not only at the moment of the IPO or original listing in the securities market.
We use this data to run a panel analysis of French capital exports and compare the results with other similar empirical exercises in historical and contemporary settings.
This talk is part of the Financial History Seminar series.
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