DP5846 International Trade and Finance under the Two Hegemons: Complementarities in the United Kingdom (1870-1913) and the United States (1920-30)
|Author(s):||Alan M. Taylor, Janine Wilson|
|Publication Date:||October 2006|
|Keyword(s):||complementarities, international investment, international trade|
|JEL(s):||F10, F30, F40, N10, N20, N70|
|Programme Areas:||International Macroeconomics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5846|
Do international trade and finance flow together? In theory, trade and finance can be substitutes or complements, so the matter must be resolved empirically. We study trade and financial flows from the United Kingdom from 1870 to 1913 and the United States in the interwar years. Trade and finance are robustly correlated, even after allowing for simultaneity. Evidence from the British Empire casts doubt on the idea that trade is a punishment device in the event of default.