Capital Market Internationalization 9 term foreign capital paid lower interest rates on loans contracted in London,Paris, Berlin,and other financial centers if they adhered to the gold standard.32 In the Rus- sian and Austrian empires,partisans of industrialization thought that industrialization could be a speedy process if foreign capital intervened to stimulate it-foreign capi- tal would come by adopting the gold standard.33 Reflecting on the experience of Spain,which suspended gold convertibility in 1883,Pablo Martin-Acena argued that,by staying out of the gold standard,"Spain missed on growth."34 Not only did imports of foreign capital cease from 1883 until 1906,when a new administration finally opted for a return to gold,but yields on the public debt were "'consistently maintained above British,French,and even Italian yields."35 The generalization of the gold standard coincided with a rise in international capi- tal outflows to levels that were never approached before and have never been ap- proached since.Paul Bairoch's estimates for capital fows for all net creditor coun- tries show a slowdown in the depression decades of the gold standard,followed by an unprecedented surge after 1900: 1840-1870:2.5-3.5 percent GNP 1870-1900:1.5-2.0 percent GNP 1900-1913:5.5 percent GNP36 Comparable data for the 1920s,1960s,and 1970s were below 1 percent. Most of this investment,about three-fourths,came from three countries (United Kingdom,France,and Germany),which were running persistent current account surpluses by generating savings in excess of domestic investment.Relative to total domestic savings,net capital outflows in 1910 represented 52 percent for the United Kingdom and 15 percent for France.37 The rest was contributed by the Netherlands, Belgium,Switzerland,and,toward the end of the period,Sweden.Most of this invest- ment went to a few countries-the United States,Canada,Australasia,Argentina, Brazil,Mexico,Russia,Spain,Portugal,Italy,Austria-Hungary,and the Scandina- vian countries.38 What made foreign investment so popular among savers in Britain,France,Ger- many,and other creditor countries was its greater safety,at equivalent yield,than domestic paper.In the case of Britain,Michael Edelstein found that overseas returns exceeded home returns over the years 1870-1913;he also found that overseas re- incentive to borrow and then default on its debt through inflation or suspension of payments.Anticipating default,bond holders will either ask for a higher interest rate or not purchase govemment debt.A solution to the dilemma is for the government to commit to gold convertibility at a fixed rate-a transparent and simple rule:Bordo and Kydland 1995.Bordo and Schwartz found that those countries that adhered to the gold standard rule generally had lower fiscal deficits,more stable money growth,and lower inflation rates than those that did not;Bordo and Schwartz 1994. 32.Bordo and Rockoff 1995,18. 33.De Cecco 1974,52 34.Martin-Acena 1994,160. 35.Ibid.,144. 36.Bairoch1976.103 37.Green and Urquhart 1976.241,244. 38.Cameron1991.13.term foreign capital paid lower interest rates on loans contracted in London, Paris, Berlin, and other Ž nancial centers if they adhered to the gold standard.32 In the Rus￾sian and Austrian empires, partisans of industrialization thought that industrialization could be a speedy process if foreign capital intervened to stimulate it—foreign capi￾tal would come by adopting the gold standard.33 Re ecting on the experience of Spain, which suspended gold convertibility in 1883, Pablo Martin-Acen˜a argued that, by staying out of the gold standard, ‘‘Spain missed on growth.’’ 34 Not only did imports of foreign capital cease from 1883 until 1906, when a new administration Ž nally opted for a return to gold, but yields on the public debt were ‘‘consistently maintained above British, French, and even Italian yields.’’ 35 The generalization of the gold standard coincided with a rise in international capi￾tal out ows to levels that were never approached before and have never been ap- proached since. Paul Bairoch’s estimates for capital  ows for all net creditor coun￾tries show a slowdown in the depression decades of the gold standard, followed by an unprecedented surge after 1900: 1840–1870: 2.5–3.5 percent GNP 1870–1900: 1.5–2.0 percent GNP 1900–1913: 5.5 percent GNP 36 Comparable data for the 1920s, 1960s, and 1970s were below 1 percent. Most of this investment, about three-fourths, came from three countries (United Kingdom, France, and Germany), which were running persistent current account surpluses by generating savings in excess of domestic investment. Relative to total domestic savings, net capital out ows in 1910 represented 52 percent for the United Kingdom and 15 percent for France.37 The rest was contributed by the Netherlands, Belgium, Switzerland, and, toward the end of the period, Sweden. Most of thisinvest- ment went to a few countries—the United States, Canada, Australasia, Argentina, Brazil, Mexico, Russia, Spain, Portugal, Italy, Austria-Hungary, and the Scandina- vian countries.38 What made foreign investment so popular among savers in Britain, France, Ger- many, and other creditor countries was its greater safety, at equivalent yield, than domestic paper. In the case of Britain, Michael Edelstein found that overseas returns exceeded home returns over the years 1870–1913; he also found that overseas re￾incentive to borrow and then default on its debt through in ation or suspension of payments. Anticipating default, bond holders will either ask for a higher interest rate or not purchase government debt. A solution to the dilemma is for the government to commit to gold convertibility at a Ž xed rate—a transparent and simple rule; Bordo and Kydland 1995. Bordo and Schwartz found that those countries that adhered to the gold standard rule generally had lower Ž scal deŽ cits, more stable money growth, and lower in ation rates than those that did not; Bordo and Schwartz 1994. 32. Bordo and Rockoff 1995, 18. 33. De Cecco 1974, 52. 34. Martin-Acen˜a 1994, 160. 35. Ibid., 144. 36. Bairoch 1976, 103. 37. Green and Urquhart 1976, 241, 244. 38. Cameron 1991, 13. Capital Market Internationalization 9