Capital Markets in China and Britain, 1770-1860: Evidence from Grain Prices
Carol H. Shiue
- American Economic Journal: Applied Economics (Forthcoming)
Based on the most comprehensive grain price data, we employ a storage model to estimate consistent interest rates and compare capital market development between Britain and China. Interest rates for Britain were lower than China’s on average by about three percentage points from 1770 to 1860. For countries pairs with bilateral distance less than 200 kilometers, the regional capital market integration in the Yangzi Delta in China comes close to the British average, but at larger distances spatial interest rate correlations in Britain are twice those of the Delta, and three or more times as high as elsewhere in China. Overall, our results suggest capital market development differences at an early date, so that capital market performance may be important for the Great Divergence (Pomeranz 2000) that emerged between China and Western countries at this time.
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