Global Capital Markets Integration, Crisis, and Growth

An economic survey of international capital mobility from the late nineteenth century to the present.

This book presents an economic survey of international capital mobility from the late nineteenth century to the present. The authors examine the theory and empirical evidence surrounding the fall and rise of integration in the world market. A discussion of institutional developments focuses on capital controls and the pursuit of macroeconomic policy objectives in shifting monetary regimes. The Great Depression emerges as the key turning point in recent history of international capital markets, and offers important insights for contemporary policy debates. Its principal legacy is that the return to a world of global capital is marked by great unevenness in outcomes regarding both risks and rewards of capital market integration. More than in the past, foreign investment flows largely from rich countries to other rich countries. Yet most financial crises afflict developing countries, with costs for everyone.

Part I. Preamble; Section 1. Global Capital Markets: Overview and Origins: 1. Theoretical benefits; 2. Problems of supernational capital markets in practice; 3. The emergence of world capital markets; 4. The trilemma: capital mobility, the exchange rate, and monetary policy; Part II. Global Capital in Modern Historical Perspective; Section 2. Globalization in Capital Markets: Quantity Evidence: 5. The stocks of foreign capital; 6 The size of international flows; 7. The saving-investment relationship; 8. Caveats: quantity criteria; Section 3. Globalization in Capital Markets: Price Evidence: 9. Real interest rate convergence; 10. Exchange-risk free nominal interest parity; 11. Purchasing power parity; 12. Caveats: price criteria; 13. Summary; Part III. The Political Economy of Capital Mobility; Section 4. Globalization in Capital Markets: A Long-Run Narrative: 14. Capital without constraints: the gold standard, 1870–1931; 15. Crisis and compromise: depression and war, 1931–46; 16. Containment then collapse: Bretton Woods, 1946–71; 17. Crisis and compromise II: the floating era, 1971–99; 18. Measuring financial integration using data on legal restrictions; Section 5. The Trilemma in History: 19. Methodology; 20. Data sources; 21. Stationarity of nominal interest rates; 22. Empirical findings: pooled annual differences; 23. Empirical findings: individual-country dynamics; 24. Conclusion; Section 6. Sovereign Risk, Credibility and the Gold Standard: 25. Five suggestive cases; 26. Econometric analysis; 27. Conclusion; Part IV. Lessons for Today; Section 7. Uneven Rewards: 28. Foreign capital stocks: net versus gross; 29. Foreign capital flows: rich versus poor; 30. Foreign capital stocks: rich versus poor; 31. Then: has foreign capital always been biased to the rich?; 32. Now: have poor countries really liberalized their markets?; 33. Variations in the types of capital flows; 34. Summary; Section 8. Uneven Risks: 35. Open markets, crises and volatility; 36. Crises, controls and economic performance; 37. Contagion and self-fulfilling crises; 38. Market failure, government failure and policy choices.

This 2004 book shows that globalization can be seen, in part, as the resumption of a liberal world order that had previously been established in the years 1880-1914, but also points out that much is different in terms of its causes and consequences.

Maurice Obstfeld is the Class of 1958 Professor of Economics at the University of California, Berkeley. His interests are in international finance and macroeconomics, areas in which he has published numerous research articles. Professor Obstfeld received his Ph.D. from MIT and later taught at Columbia, the University of Pennsylvania, and Harvard before moving to Berkeley. He has served as a consultant for the IMF, World Bank, European Commission, and several central banks. With Kenneth Rogoff, he is the author of Foundations of International Macroeconomics (1996). He is also the author, together with Paul Krugman, of International Economics: Theory and Policy, which has been translated into several foreign languages. He is a Research Associate of the National Bureau of Economic Research, a Research Fellow of the Centre for Economic Policy Research (London), and a Fellow of the Econometric Society.
Alan M. Taylor is Professor of Economics at the University of California, Davis, where he holds a Chancellor's Fellowship through to 2006. He previously taught at Northwestern University. Professor Taylor's research has been published in leading journals such as the American Economic Review, the Quarterly Journal of Economics, Econometrica, the Economic Journal, the Journal of Political Economy, International Economic Review, and the Journal of Economic History. A Research Associate of the National Bureau of Economic Research, he is the recipient of the 2000 Arthur H. Cole Prize (with G. della Paolera) and the 1993 Alexander Gerschenkron Prize. Professor Taylor coedited the collection Globalization in Historical Perspective (with M. D. Bordo and J. G. Williamson, 2005) and coauthored the 2001 Straining at the Anchor: The Argentine Currency Board and the Search for Macroeconomic Stability, 1880–1935 (with G. della Paolera).

This book presents an economic survey of international capital mobility since the late nineteenth century. A preamble introduces the major issues examines developments in the eighteenth century and before, the important historical preconditions that set the stage for the global market in the nineteenth century. Theory & empirical evidence are used to evaluate the evolution of globalization in financial markets.