'Home Biases', 19th Century Style

Marc Flandreau

No 5398, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper discusses the existence of 'home' biases in the 19th century global capital market, whereby colonies appear to have received a 'disproportionate' amount of capital from their metropolis. Starting from a discussion of the Bulow Rogoff (1989) problem, we argue that imperial links provided a natural institutional framework to make pre-commitment credible by ensuring an adequate degree of willingness to pay. This was not because imperial rule provided coercion or punishment, but rather because it supplied a legal framework that effectively suppressed the « sovereign » nature of colonial debts. We conclude that the greater facility with which capital migrated in the 19th century has much to do with the fact that colonies were more akin to the 'regions' of modern countries

Keywords: colonies; home bias; Lucas paradox; willingness to pay (search for similar items in EconPapers)
JEL-codes: F31 N32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-his and nep-hpe
Date: 2005-12
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