Globalization and Inequality - Trinity College Dublin

17%, and it had increased to an impressive 33% in 1913. The flows were extremely large during
peak years: as a share of British GDP they were 7.7% at the 1872 peak, 6.9% in 1888, and 8.7%
in 1911. No OECD country, including the US, exported capital to that extent in the late 20 th
century. For example, Japanese and German current account surpluses in the mid- and late-1980s
peaked at around 4 or 5% of GDP.
Foreign capital flows were equally important at the receiving end. To give just one example,
net inward foreign investment as a share of gross fixed capital formation ranged from 10 to 20%
amongst the major Third World importers in the decade prior to 1984, and was less than 10% of
investment in DCs in the early 1990s. 3 The same statistic for the four decades between 1870 and
1910 was 37% for Canada (Jones and Obstfeld 1997), it was about 70% for Argentina, 4 and
perhaps as much as 75% for Mexico. By some measures, international capital flows have never
been as important as they were in the late 19 th century, despite all the rhetoric about the
unprecedented nature of today’s globalization.
Capital flows diminished in size during the 1920s, but things would soon get worse: with the
onset of the Great Depression, a wave of default in DCs ensued, and capital flows to these
countries remained limited for decades thereafter. Between 1945 and 1972, most of the limited
capital flows that took place did so in the form of direct government and multinational institutional
investment abroad. Since 1972, the global capital market has become increasingly important, but
Figure 1 places current trends into their proper historical context. It plots average current account
shares in GDP (absolute values, 14 countries); while that share has been on the rise since the early
3
For the latter statistic, see World Bank (2000), p.121.
4
For the years 1885-1910; based on data kindly supplied by Alan Taylor.
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