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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
1913.The absolute value of net overseas asset amounted 4bn This
. L 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 L 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. Therefore,
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