Empire Effect 285 billion,as against British GDP of f2.5 billion.This portfolio was authen- tically global:around 45 percent of British investment went to the United States and the colonies of white settlement,20 percent to Latin America, 16 percent to Asia and 13 percent to Africa,compared with just 6 percent to the rest of Europe.'Adding together all British capital raised through public issues of securities,as much went to Africa,Asia,and Latin Amer- ica between 1865 and 1914 as to the United Kingdom itself.+ It has been claimed by Michael Clemens and Jeffrey Williamson that there was something of a"Lucas effect"in the period between 1880 and 1914,in other words that British capital tended to gravitate towards wealthy countries rather than relatively poor countries.Yet the bias in favor of rich countries was much less pronounced than it has been in more recent times.In 1997 only around 5 percent of the world's stock of international capital was invested in countries with per capita in- comes of a fifth or less of U.S.per capita GDP.In 1913,according to Maurice Obstfeld and Alan Taylor,the proportion was 25 percent. Very nearly half of all international capital stocks in 1914 were invested in countries with per capita incomes a third or less of Britain's,and Britain accounted for nearly two-fifths of the total sum invested in these poor economies.The contrast between the past and the present is strik- ing.Whereas today's rich economies prefer to"swap"capital with one another,largely bypassing poor countries,a century ago the rich economies had very large,positive net balances with the less well-off countries of the world.8 How important was the empire as a destination for British capital? According to the best available estimates,more than two-fifths(42 per- cent)of the cumulative flows of portfolio investment from Britain to the rest of the world went to British possessions.An alternative measure- the imperial proportion of stocks of overseas investment on the eve of the First World War-was even higher:46 percent.And about half of this amount went to relatively poor British colonies,not to the much 2Cain and Hopkins,British Imperialism,pp.161-63. 3 Maddison,World Economy,table 2-26a. 4 Davis and Huttenback,Mammon,p.46. s According to Clemens and Williamson,"about two-thirds of British foreign investment went to the labor-scarce New World where only a tenth of the world's population lived,and only about a quarter of it went to labor-abundant Asia and Africa where almost two-thirds of the world's population lived":Clemens and Williamson,"Wealth Bias,"p.305.However,see also the different findings in Schularick,"Two Globalizations." Obstfeld and Taylor,"Globalization and Capital Markets,"p.60,figure 10. 7 Schularick,"Two Globalizations,"table 3. 8 Similarly,Schularick and Steger,"Does Financial Integration,"find that financial integration had a positive impact on growth in developing countries before World War I,but not after 1990. The authoritative source for the distribution of British capital exports is Stone,Global Ex- port.See also Schularick,"Two Globalizations,"table 3.Empire Effect 285 billion, as against British GDP of £2.5 billion.2 This portfolio was authen￾tically global: around 45 percent of British investment went to the United States and the colonies of white settlement, 20 percent to Latin America, 16 percent to Asia and 13 percent to Africa, compared with just 6 percent to the rest of Europe.3 Adding together all British capital raised through public issues of securities, as much went to Africa, Asia, and Latin Amer￾ica between 1865 and 1914 as to the United Kingdom itself.4 It has been claimed by Michael Clemens and Jeffrey Williamson that there was something of a “Lucas effect” in the period between 1880 and 1914, in other words that British capital tended to gravitate towards wealthy countries rather than relatively poor countries.5 Yet the bias in favor of rich countries was much less pronounced than it has been in more recent times. In 1997 only around 5 percent of the world’s stock of international capital was invested in countries with per capita in￾comes of a fifth or less of U.S. per capita GDP. In 1913, according to Maurice Obstfeld and Alan Taylor, the proportion was 25 percent.6 Very nearly half of all international capital stocks in 1914 were invested in countries with per capita incomes a third or less of Britain’s, and Britain accounted for nearly two-fifths of the total sum invested in these poor economies.7 The contrast between the past and the present is strik￾ing. Whereas today’s rich economies prefer to “swap” capital with one another, largely bypassing poor countries, a century ago the rich economies had very large, positive net balances with the less well-off countries of the world.8 How important was the empire as a destination for British capital? According to the best available estimates, more than two-fifths (42 per￾cent) of the cumulative flows of portfolio investment from Britain to the rest of the world went to British possessions.9 An alternative measure— the imperial proportion of stocks of overseas investment on the eve of the First World War—was even higher: 46 percent. And about half of this amount went to relatively poor British colonies, not to the much 2 Cain and Hopkins, British Imperialism, pp. 161–63. 3 Maddison, World Economy, table 2–26a. 4 Davis and Huttenback, Mammon, p. 46. 5 According to Clemens and Williamson, “about two-thirds of British foreign investment went to the labor-scarce New World where only a tenth of the world’s population lived, and only about a quarter of it went to labor-abundant Asia and Africa where almost two-thirds of the world’s population lived”: Clemens and Williamson, “Wealth Bias,” p. 305. However, see also the different findings in Schularick, “Two Globalizations.” 6 Obstfeld and Taylor, “Globalization and Capital Markets,” p. 60, figure 10. 7 Schularick, “Two Globalizations,” table 3. 8 Similarly, Schularick and Steger, “Does Financial Integration,” find that financial integration had a positive impact on growth in developing countries before World War I, but not after 1990. 9 The authoritative source for the distribution of British capital exports is Stone, Global Ex￾port. See also Schularick, “Two Globalizations,” table 3