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Capital Exports And The Victorian Economy Notes

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Supervision 6: Capital Exports British Economic History, Paper 5, Part I Elisa Newby Essay What effect did the high level of capital exports have on the growth rate of the UK economy
after 1870?
In the period of 1870­1914, Britain invested heavily in foreign markets. The flow of net foreign
investments averaged about a third of the nation's annual accumulations. Net overseas assets
grew from around 7% of the national wealth in 1850 to around 14% in 1870 and then to 32% in

The absolute value of net overseas asset amounted 4bn This high level of overseas

investment went together with a lower level of domestic investment as a proportion of GNP. While
Germany, the US and the UK all had similar saving rates of 11­15% of GNP, the proportion
invested at home averaged only 5­7% of GNP in Britain in 1871­1913, compared with around
12% for the other two.³ This huge commitment of national income to capital formation abroad has
been unmatched in history. Overseas investment was largely focused on transportation, especially railways and government
bonds. From 1865­1914, both sectors had a share of around 38% respectively, making up the
lion's share of overseas investment.
The totals of capital exports showed wavelike movements

about a marked upward trend. One wave of foreign lending which had begun in 1861 peaked in
1872, and a second reached its peak in 1890. The third wave rose in the final nine years before
the war, reaching 200 million ₤ per year.
This cyclical movement of capital exports was broadly

matched by an inverse cycle of home investments.
Moreover, British investments exhibited short

bursts: The greater part of British investment in Australia occurred in the 1880s and early 1890s,
in Canada after 1900 and in South Africa in the early 1900s. Only the United States received a
continuous flow of capital from Britain. Depending on whether capital was "pushed" out because of lacking domestic opportunities or
whether it was "pulled" abroad due to promising projects overseas, the impact may vary. If capital
was pushed out, there will be almost no negative effects on the British economy, as there was no
lucrative use for capital in Britain. If pull factors dominated, there will be different effects on British
growth. In reality, push factors initially dominated for US investments, but to a declining extent.
In other countries as Argentina, Canada and Australia, pull factors were dominant.


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