A tale of two ‘globalizations’: capital flows from rich to poor in two eras of global finance

Abstract

AbstractIn this paper we take a comparative look at the patterns of capital flows from rich to poor countries in two eras of financial globalization. The paper extends recent research on the developmental effects of international financial integration, long‐term trends in capital mobility and ‘globalization in historical perspective’. Analysing the patterns of international financial integration in the three decades of the classical gold standard and after 1990 we show that investment in developing countries was a central element of 19th century financial globalization, but plays only a minor role today. The Lucas paradox of capital failing to flow from rich to poor has grown much stronger. In historical perspective, today's financial globalization is marked by massive diversification flows between high‐income economies and a relative marginalization of less‐developed economies. Copyright © 2006 John Wiley & Sons, Ltd.