International Capital Movements During the Napoleonic Wars and the Industrial Revolution in Britain
Roh, Taek Seon
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https://hdl.handle.net/2142/72426
Description
Title
International Capital Movements During the Napoleonic Wars and the Industrial Revolution in Britain
Author(s)
Roh, Taek Seon
Issue Date
1993
Doctoral Committee Chair(s)
Neal, Larry
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
History, European
Economics, History
Abstract
The recent debate on the "Crowding-out" effect of the Napoleonic wars on the British economy calls forth more research on the issue of international capital movements of the time. Britain experienced a series of regime shifts, most importantly from a peace to a war (1793), from the gold standard to the paper pound by the suspension of cash payments (1797), from the war to a peace (1815) and from the paper pound to the gold standard (1821). These regime shifts had a great impact on the international financial markets and, consequently, on the British economy. We uncovered the data for the price side of the international financial markets and and analyzed them to draw some conclusions on the international capital movements. Among the major findings are: (1) The Napoleonic wars increased the risk of investing in the continental assets, and when we took these risk premia associated with the war into account as the wartime risk premia, the actual rate of return in Britain was higher than in the continental states; (2) The British pound was depreciated during the war. Because an appreciation of the pound was expected with the end of the war, the depreciation of the pound meant an increase in the rate of return on the pound denominated assets; (3) When the war ended in 1815, not only the war-associated risk on the continental side disappeared, but also most of the advantages from the depreciation of the pound were gone as the exchange rate returned to the par rate. As a result, the rate of return of the continental assets was higher during the post war period. From these findings of the price side analysis, we conclude that during the war capital flowed into Britain as the other side of story of heavy war-financing and government debts, and helped the Industrial Revolution keep going despite it, and after the war the repatriation of foreign capital, coupled with the foreign investment boom among Britons, aggravated the post-war depression in Britain.
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