Was There Really an Earlier Period of International Financial Integration Comparable to Today?

Abstract

In this paper we reconsider the international market integration, starting at high levels in the late nineteenth century, collapsing between the wars, and recovering gradually after 1945 to reach levels comparable to pre-1914 in the 1990's. The empirical evidence we survey suggests that in some respects the financial integration of the pre-1914 era remains unsurpassed, but in others today's financial markets are even more closely integrated than those in the past. The difference today is that new information-generating and processing technologies have reduced the market-segmenting effects of asymmetric information. In consequence, the range of financial claims that are traded internationally has broadened. While international financial transactions were once determined by claims on governments, railroads, and mining companies, entities with tangible and therefore relatively transparent assets, international investors now transact freely in a much broader range of securities.