International Finance and the Great Powers, 1800-2020

Project Information

Great.Power.Finance

Grant agreement ID: 101087838

DOI

10.3030/101087838

EC signature date 3 April 2023

Start date 1 October 2023

End date 30 September 2028

Funded under

• European Research Council (ERC)

Total cost

€ 1 997 244,00

EU contribution

€ 1 997 244,00

Coordinated by

INSTITUT FUER WELTWIRTSCHAFT LEIBNIZ ZENTRUM ZUR ERFORSCHUNG GLOBALER OKONOMISCHER HERAUSFORDERUNGEN
Germany

Periodic Reporting for period 1 - Great.Power.Finance (International Finance and the Great Powers, 1800-2020)

Reporting period: 2023-10-01 to 2026-03-31

Summary of the context and overall objectives of the project

The world is entering a new era of great-power rivalry. This raises fundamental questions for international economics: Will China’s ascent and the US-Chinese rivalry deepen globalization or contribute to its fragmentation? How will growing geopolitical tensions reshape trade, investment, and markets worldwide? And why is China investing trillions in the Belt and Road Initiative? Answering these questions requires a long historical perspective, yet most research relies on post-1970s data, a period dominated by the United States. As a result, we still know little about how geopolitical rivalry and shifts in the global balance of power shape economic globalization. This project aims to fill that gap. It combines theory, rigorous empirical methods, and newly assembled data to study how great-power dynamics influenced global economic integration and international capital allocation over the past 200 years. The project builds detailed datasets on North–South capital flows, investor returns, and infrastructure projects since 1800, and uses them to examine how changes in the international order affect global integration, how wars and geopolitical shocks move financial markets, and how rising powers use infrastructure investments to extend their influence abroad.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

The project has progressed very well in its first two years. We are on track of assembling the most comprehensive long-run dataset on global capital flows covering tens of thousands of external bond and stock issuances since the 19th century. We also nearly completed a comprehensive 150-year global dataset on cross-border telecommunications infrastructure. For this purpose we traced every international subsea cable ever laid on the ocean floor since the mid-19th century, including all telegraphy, telephony and internet subsea cables. In addition, we created a new database and accompanying working paper on China’s collateralized infrastructure lending, which is now publicly available. On the conceptual side, we developed a framework to study how hegemons influence global economic integration. We already produced two papers, including the working paper “Hegemonic Globalization” and are working on a follow-up paper on “Hegemonic Finance”. We also began examining how geopolitical shocks affect investor returns over two centuries, supported by the construction of a new long-run external bond return index.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The project has already generated several results that move well beyond the current state of the art. First, we produced the first systematic, 150-year global dataset on submarine telecommunications cables. This is an entirely new empirical foundation for studying how connectivity and infrastructure shape economic and geopolitical outcomes over the long run. Second, we delivered the first rigorous test of Kindleberger’s hegemonic stability hypothesis. We combine a new theoretical framework with two centuries of global data to show how shifts in the international balance of power affect the depth of globalization. As part of this work, we created the Global Treaty Database, the first comprehensive dataset of all international treaties since 1800, which provides an innovative measure of political alignment and offers wide applicability in economics, political science, and law. Third, we uncovered a previously undocumented mechanism of geopolitical influence in the developing world: collateralized infrastructure projects. Based on rich new data we collected, we show how Chinese financial institutions use collateralized lending for infrastructure to maximize the probability of loan repayment and retain influence well after the loans have been disbursed. We show that many infrastructure loans are backed by project-unrelated revenue streams from commodity revenues. This suggest that China may use infrastructure lending to gain leverage not only over infrastructure assets but also over recipient countries’ commodity exports. Taken together, these insights significantly advance knowledge in international economics, international law, and international political economy. As the project and data collection continues, we hope to advance the research frontier further.