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The Proximate Determinants of Domestic Investment in Victorian Britain

Published online by Cambridge University Press:  03 March 2009

Barry J. Eichengreen
Barry J. Eichengreen
Affiliation:
Assistant Professor of Economics, Harvard University, Cambridge, Massachusetts, 02138.
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Abstract

This paper attempts to shed new light on the proximate determinants of domestic investment in Victorian Britain by focusing on the relationship between asset markets and investment behavior. It demonstrates that Victorian investment fluctuations were associated with divergences between the valuation of installed capital as determined in asset markets and the supply price of new capital as determined in commodity markets. After showing how investment fluctuations in Victorian Britain were related to real equity prices, the paper concludes with a summary of findings on the determinants of real share prices.

Type
Papers Presented at the Forty-First Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 42 , Issue 1 , March 1982 , pp. 87 - 95
Copyright
Copyright © The Economic History Association 1982

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References

1 See for example Cairncross, A. K., Home and Foreign Investment, 1870–1913 (Cambridge, 1953), pp. 187–209;Google ScholarRostow, W. W., British Economy of the Nineteenth Century (Oxford, 1949), pp. 58–89.Google Scholar

2 Tobin, James, “A General Equilibrium Approach to Monetary Theory,” Journal of Money, Credit and Banking, 1 (02 1969), 15–29.CrossRefGoogle Scholar

3 This derivation builds upon Abel, Andrew B., “Empirical Investment Equations: An Integrative Framework,” Carnegie-Rochester Conference Series on Public Policy, 12 (Spring 1980), 39–42Google Scholar, and Blanchard, Olivier Jean, “Demand Disturbances and Output,” Harvard Institute of Economic Research Discussion Paper 777 (07 1980), Harvard University, Cambridge, Massachusetts.Google Scholar

4 Maximizing with respect to L yields a second first-order condition: w = pyfL.Google Scholar

5 More precisely, for average and marginal q's to be equal, debt/equity ratios must be constant and production and installation functions must be linear homogenous.Google Scholar

6 Lavington, Frederick, The English Capital Market (London, 1921), p. 221;Google ScholarJeffreys, J. B., “The Denomination and Character of Shares, 1855–1889,” Economic History Review, 16 (1946), 45–55;Google ScholarNavin, Thomas R. and Sears, Marian V., “The Rise of the Market for Industrial Securities, 1887–1902,” Business History Review, 29 (06 1955), 106;Google ScholarDavis, Lance, “The Capital Markets and Industrial Concentration: The U.S. and U.K., A Comparative Study,” Economic History Review, 19 (08 1966), 258–59.Google Scholar

7 Omitting G and K-1 has little effect on the estimated coefficients of q.Google Scholar

8 This is a brief summary of Section V of the author's discussion paper.Google Scholar

9 Granger, C. W. J., “Investigating Causal Relations by Econometric Models and Cross-spectral Methods,” Econometrica, 37 (07 1969), 429–38.CrossRefGoogle Scholar

10 Eichengreen, Barry J., “The Causes of British Business Cycles, 1833–1913,” Journal of European Economic History (forthcoming).Google Scholar