International Capital Flows and Political Transition in Europe: Historical Perspectives

  • Larry Neal
Conference paper


The relationship of international capital flows and the stability of national political regimeshas become a focal point of interest recently among political scientists. Jeffrey Frieden notes several reasons this should be so. First, gross capital flows across national borders have increased astronomically in the past 20 years and have become much larger than other forms of international economic transactions. Frieden noted that by April of 1989, “…foreign exchange trading in the world’s financial centers averaged about $650 billion a day, equivalent to nearly $500 million a minute,” and was 40 times the level of trade. He also reported that the 15 year increase (from 1974 to 1989) in international bank and bond lending meant that its relative size had risen from 5% to 25% of the aggregate GNP of the industrialized countries. (FRIEDEN, 1991, p. 428.) In the course of this dramatic rise in the importance of global finance, national economic policy-makers have increasingly found their traditional tools of macro-economic management to be undermined, irrelevant and even counter-productive. No longer can they control their prices, their interest rates, or their budgets, it is argued, all because of the ruthless rise of innovative forces in the global financial market. These market forces siphon off financial resources before governments can direct them to productive purposes domestically, or if funds flow in from abroad they may not be directed towards achieving the goals of the government. Moreover, the innovations of the global financial market place are proceeding at a pace far more rapid than government institutions or political consensuses can respond.


Capital Flow International Capital Indirect Taxis International Capital Market Direct Taxis 
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© Springer-Verlag Berlin Heidelberg 1996

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  • Larry Neal

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