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Capital Inflows, Current Accounts and the Investment Cycle in Italy: 1861–1913

In: Research in Economic History

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  • Barbara Pistoresi
  • Alberto Rinaldi

Abstract

Relying on a new dataset, this paper examines the genesis of current account fluctuations and the investment cycle in Italy. We perform a Granger causality test that shows that the persistent current account deficits in the years from unification to World War I were generated by variations in capital inflows, as hypothesized by Fenoaltea, and not by the dynamics of GDP, as in the Bonelli–Cafagna model. Finally, we show that these capital inflows prompted an industrial investment cycle in equipment and machinery but not – as claimed by Fenoaltea (1988) – a general investment cycle which included also construction and more volatile components of investment. These patterns held under both fixed and floating exchange rate regimes.

Suggested Citation

  • Barbara Pistoresi & Alberto Rinaldi, 2015. "Capital Inflows, Current Accounts and the Investment Cycle in Italy: 1861–1913," Research in Economic History, in: Research in Economic History, volume 31, pages 241-261, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:rehizz:s0363-326820150000031005
    DOI: 10.1108/S0363-326820150000031005
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    References listed on IDEAS

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    1. Fenoaltea, Stefano, 1988. "International resource flows and construction movements in the atlantic economy: the kuznets cycle in Italy, 1861–1913," The Journal of Economic History, Cambridge University Press, vol. 48(3), pages 605-637, September.
    2. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
    3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    4. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    5. Andrea Colli & Michelangelo Vasta (ed.), 2010. "Forms of Enterprise in 20th Century Italy," Books, Edward Elgar Publishing, number 12795.
    6. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    7. Barbara Pistoresi & Alberto Rinaldi, 2013. "External constraint and economic growth in Italy: 1861-2000," Department of Economics (DEMB) 0011, University of Modena and Reggio Emilia, Department of Economics "Marco Biagi".
    8. Alberto Baffigi, 2011. "Italian National Accounts, 1861-2011," Quaderni di storia economica (Economic History Working Papers) 18, Bank of Italy, Economic Research and International Relations Area.
    9. Zamagni, Vera, 1997. "The Economic History of Italy 1860-1990," OUP Catalogue, Oxford University Press, number 9780198292890.
    10. Piero Bolchini & Pierluigi Ciocca & Marcello de Cecco & Giovanni Federico & Giuseppe Tattara & Gianni Toniolo & Vera Zamagni, 2006. "A proposito di Stefano Fenoaltea, L'economia italiana dall'Unità alla Grande Guerra (Bari-Roma, 2006). Interventi di:," Rivista di storia economica, Società editrice il Mulino, issue 3, pages 331-331.
    11. Paolo Di Martino, 2001. "Corso della Rendita e andamenti del tasso di cambio della Lira negli anni del "gold standard" (1883-1893)," Rivista di storia economica, Società editrice il Mulino, issue 1, pages 3-32.
    12. Cohen,Jon & Federico,Giovanni, 2001. "The Growth of the Italian Economy, 1820–1960," Cambridge Books, Cambridge University Press, number 9780521661508, September.
    13. Fenoaltea,Stefano, 2014. "The Reinterpretation of Italian Economic History," Cambridge Books, Cambridge University Press, number 9781107658080.
    14. Michele Fratianni & Franco Spinelli, 1984. "Italy in the Gold Standard Period, 1861-1914," NBER Chapters, in: A Retrospective on the Classical Gold Standard, 1821-1931, pages 405-454, National Bureau of Economic Research, Inc.
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    1. Paolo Di Martino & Barbara Pistoresi & Alberto Rinaldi, 2016. "International financial flows, domestic banks, and the economic development of the periphery: Italy, 1861-1913," Department of Economics 0104, University of Modena and Reggio E., Faculty of Economics "Marco Biagi".

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    More about this item

    Keywords

    Capital imports; current accounts; investment cycle; Italy; Granger causality; F43; O11; N1; N7;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services

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