The Importance of Overseas Emigration for the Economic Development of Germany - Essay Example

The importance of foreign capital and overseas emigration for the economic development of Germany in the 19th century The importance of foreign capital and overseas emigration for the economic development of Germany in the 19th century In the 19th century, Europe continent was the bank of the world that lent capital to countries around the world. Great Britain was the main exporter, trailed by France and Germany came third. Their capital cities were the main financial centers intermediating credit through their stock exchanges and bankers. Analysis of Germany capital exports between 1883 and 1914 shows that Germany specialized in lending to European countries, mostly to Austria-Hungary, Italy and Russia while competing with France in lending the countries. The city of Frankfurt was the financial center of Germany which was of international level importance. Following the political and economic restructurings experienced in Germany during the mid-1860s, Berlin developed as Germany’s financial center (Stone 1999, 788). Transfer of commodities, people, capital as well as ideas characterized globalization in 19th century across continents. Germany was well known to be an important financial center after the Deutsche Reich, which was founded in 1871 following the war between Germans and the French. A territory was then established and defined persistently until 1914. Despite the political unification of Germany after the war, most areas of economic life were harmonized afterwards (Clark 2003, 176). In 1873, gold standard was introduced in Germany and a year later followed by creation of central bank, the Reichs bank. The period between 1870 until 1914 was characterized by a great economic expansion in nearly all sectors with a further shift from an agricultural to an industrial economy along with concentration of powers, enterprises and capital. This rapid expansion in economy was primarily the cause and consequence of the fast growing population and with the evolution to an industrialized economy leading to increased urbanization rates. Germany experienced net migration outflows until the mid 1890s when it turned into inflows until 1908. In 1883-1913, Germany invested roughly six hundred and eighty million capitals in British pounds in foreign securities that translated to an average of twenty two million pounds per year. This capital was predominantly invested into European countries but also other regions obtained considerable amounts of capital. In the middle of 19th century, private banks were the main financial intermediaries for foreign securities, but were later displaced by the joint-stock banks. The large majority of foreign securities were bonds and the main issuers were governments and railroad companies to Germany’s neighboring countries (Clark & Feenstra 2003, 208). The countries to the exterior of Europe drew nearly solely on the Berlin stock exchange while the ones from North & Central Europe relied typically on the Hamburg stock exchange. The stock exchange in Frankfurt was an essential substitute to Berlin for borrowers from South and East European. These stock exchanges were vital market places for intermediating banks and investors too. However, banks also processed international loans and investments outside stock exchanges that remitted meaningful interests in the economy. The Great Banks improved and extended their international business first by creating affiliates abroad and later on by founding new banks overseas and delegated part of the international issuance business (Bairoch 1989, 109). Investors in Germany increasingly bought foreign securities in capital markets located outside Germany and the amount of foreign securities held in deposits outside the country which were not subjected to taxes, augmented nearly threefold between 1893 and 1902, from seven and half million pounds to twenty two million pounds. The equity investments into African railroads were nearly absolutely into the Dutch-South Africa railroad company. This company was founded in the Netherlands but was actually a German company. The railroad located in South Africa, it is considered a foreign investment in Africa and could remit good returns to Germany economy (Portes 2005, 354). In the 1870s, the average Western European outmigration rate annually was 2.2 per a thousand and 5.4 per thousand in 19th century , a proportion that is far reachable in numbers comparative to any reasonable outcrop emigration in Africa between now and 2030 (Stone 1999, 792). Causes of these migrations are obvious and explainable as on one level, the new world is endowed with a higher land:labour ratio than Europe meaning that American and Australian workers received higher wages than their European counterparts. The Industrial Revolution in 19th century began transforming the economy of the many German states making a transition from agricultural to manufacturing firms and hence making it more difficult for farmers to flourish. Between 1815-1914, Germans initially from Southern Germany and later from Northern and then from Eastern Germany migrated to North America some of whom were political rebels facing reprisals from their efforts in the failed uprising of 1848. However, majority migrated due to unpromising and constrained peasant life in Germany seeking to become independent farmers in vast lands of American west. The potato blight in Germany also severely harmed peasants (Bairoch 1989, 109). The achievements from migration were potentially massive, as the new steam technologies had lowered the cost of travelling adequately translating to mass emigration that could be inevitable. Fertility rates were on the rise throughout Europe during this period, leading to an increase in the supply of young, mobile adults. Several firms in Germany set up production in foreign countries like France, Russia and Sweden and transformed themselves into multinationals with a motive of producing inside protected markets. Germany also invited foreign scientists from France who participated in scientific congresses with each country hoping to tighten bilateral links and with other neutral allies like the United. The income that was yielded from farm labor, baking, music, brewing, merchandizes and carpentry by Germany immigrants was used in reinstating a bilateral trade between Germany and United States thereby improving economy. Raw materials from American firms were also exported to Germany due to early industrial revolution. Products made from the latter were also sold to various states of United States with the emigrants being the top purchasing group (Portes 2005, 206) Germany became an important financial center and the third largest capital exporter in Europe after political unification in 1871. German foreign lending was mainly directed towards European countries; however, also other regions received substantial funds (Stone 1999, 792). The intermediation of foreign credit was dominated by private banks in the middle of 19th century but was consecutively displaced by the joint-stock banks. From the analysis of German foreign investments in the late 19th century, it follows that German lending was focused on bond financing to neighboring countries. Loan borrowers chose to float their securities in German foreign investment centers due to favorable interest rates differentials relative to France and other European countries. Reference List Lane, P. R. and Milesi-Ferretti, G. M. (2007). The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004, Journal of International Economics 73(2): 223–250. Portes, R. and Rey, H. (2005). The determinants of cross-border equity flows, Journal of International Economics 65: 269–296. Portes, R., Rey, H. and Oh, Y. (2001). Information and capital flows: The determinants of transactions in financial assets, European Economic Review 45: 783–796. Stone, I. (1999). The global export of capital from Great Britain, 1865-1914 - A statistical survey, Macmillan Press Ltd, London. Bairoch, P. 1989. European Trade Policy, 1815-1914. In The Cambridge Economic History of Europe, Volume VIII, The Industrial Economies: The Development of Economic and Social Policies, ed. P. Mathias and S. Pollard. Cambridge: Cambridge University Press. Clark, G. and R.C. Feenstra. 2003. Technology in the Great Divergence. In Globalization in Historical Perspective, ed. M.D. Bordo, A.M. Taylor and J.G. Williamson. Chicago: University of Chicago Press. Read More