Europe’s Long-term Capital Flows Since 1971

Abstract

No area of the world has played a more active role in international flows of long-term capital than Western Europe. The United Kingdom invested abroad on a massive scale throughout the nineteenth century (Bairoch, 1976). In the first decade of the twentieth century its annual investments overseas even exceeded those at home (Green and Urquhart, 1976), something that no other country has ever done.¹ Germany and France were also important sources of international investment before the First World War, though on a much more modest scale. In fact, many European countries featured prominently over this period in international movements of long-term capital either as lenders (Netherlands, Belgium, Switzerland) or as borrowers (the Scandinavian countries and Russia), or as both (Italy) (Bairoch, 1976; Green and Urquhart, 1976; Bloomfield, 1968). Portfolio investment was by far the most important type of capital export before 1914. Lending terms were long, with maturities of up to ninety-nine years ‘not uncommon’ (World Bank, 1985, p. 13). Slightly over a quarter of these investments were intra-European. The rest went to other continents, mostly North and Latin America.

Work on this paper was made possible by generous financial support from a Sainsbury Family Trust.