United Kingdom Labour Emigration and Capital Exports 18 16- 199 1

Harry Clarke*

INTRODUCTION

This study examines linkages between United Kingdom capital exports and labour emigration after 1816. The UK was a major source of exported capital and labour to the New World to about 1913. In earlier work, linkages between immigration and capital flows were examined from the viewpoint of various high immigration countries: Australia, Canada and the US (Clarke and Smith, 1996; Clarke and Martin, 1995). The task there was to examine relations between the various interna- tional factor flows and to analyse the relative role of push and pull factors in determining those flows. Apart from the US, which was a significant source of capital even during the nineteenth century, the research did not focus attention on capital and/or labour emigration. The present study complements this earlier work by looking at labour-cum-capital migra- tions from a migrant source country perspective. An obvious reason for focusing on the UK is that it was one of the most important emigration countries: during the period of extensive European emigration Britain provided 20 per cent of total labour migrants (Baines, 1985: 45) and was also a major source of capital to the New World.

Theory suggests three possible general linkages between capital and labour emigrations:

- If exogenous labour emigrations occur (because of disturbed labour emigration push or pull influences) then capital’s marginal productivity in the source country also falls, thus providing incentives for it to emigrate. Further, when labour emigrates, consumer demand for goods and infrastructure leaves with it, providing additional incentives for capital to leave. In both cases capital chases labour (Clarke, 1993).

* School of Economics, La Trobe University, Victoria, Australia.

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- If the initiating exogenous emigration is capital then labour is left less well equipped in source countries so wages fall and labour has incentives to pursue capital. Alternatively, even if labour markets are internationally integrated but installing infrastmctural capital in destination countries is costly, labour emigrates only after infrastructural capital is installed in the destination country so as to equilibrate international wages (Clarke, 1996). In these situa- tions labour chases capital.

- Finally, suppose labour and capital jointly emigrate to pursue higher valuations by being combined with some third factor (e.g., land or natural resources). Then, while each factor’s emigra- tion perhaps stimulates the others productivity, there is either bi-directional causality (with each factor chasing the other), or independence (with each factor moving independently of the other).

With these mechanisms, the joint movement of capital and labour promotes a smoothness in the macroeconomic transition by which each factor is accepted in destination economies. Thus, with an exogenous labour immigration (from a macroeconomic viewpoint, effectively a demand injection) one might expect price hikes, a loss of foreign exchange (or gold) along with negative effects on employment in destination countries. Each of these effects, however, is offset by any accompanying capital flow. Output and the demand for destination workers are therefore stimulated, price increases are moderated and foreign exchange or gold losses offset.2

Similar effects work symmetrically in source countries. There, with the neoclassical factor market adjustments, output attributable to non- emigrants given the exogenous emigration (of non-capital owners) declines because of reduced possibilities for trading there. In short, capital and land are left less well equipped. However, these losses are offset as capital migrates in pursuit of improved returns. Again the disruption caused by one factor’s exodus is offset by the migration of the other.

This paper is concerned primarily with examining the nature of linkages between capital and labour emigration from the UK. We also consider whether the primary impulses for emigration were push or pull influ- ences - the main intent is to look at the relation between the flows rather than the determinants of either. The nature of the capital-labour link is examined qualitatively using historical argument and quantitatively using statistical tests and causality analysis. The starting time for analy- sis is the end of the Napoleonic Wars when useful data became available.

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These joint movements of capital and labour from the UK are topics much discussed in economic history literature. The scholarly works of Cairncross (1953), Thomas (1973) and Baines (1985) deal with related issues, and while we draw on their views and those of their critics, the present analysis is focused more narrowly on the relation between the respective types of factor movements.

The central economic variables analysed are:

- IMMUK, the UK annual net emigration rate, defined as the negative of annual net immigration divided by end-of-year population.'

- CURRUK, the UK annual capitalflow rate, defined as the nega- tive of the annual current account deficit divided by nominal GNP.4

These are normalized measures of the factor flows which indicate, for labour, the intensity of emigrations relative to population size and, for capital, the intensity of capital exports relative to the size of the economy as measured by nominal GNP.' Figure 1 (page 252) shows the appar- ently close relation between these two measures of factor flow for the 176 years from 1815 to 1991.

What are the broad descriptive statistical features of this relationship? Between 18 15 and 199 1, 15.8 million persons emigrated from the UK (an average 90,300 per year). Between 1870 and 1991 (a shorter interval for which comparable data are available for countries of immigration) 9.3 million persons emigrated (an average 76,600 per year). Apart from a few specific short periods (e.g., the ten years after the Irish famine crises of 1846/47 and World War I), these emigrations did not eliminate population growth in the UK but they substantially reduced it. In most years during this period the UK experienced net labour emigration. Data are unavailable for 1940-45 but net migration movements then (if not troop movements) were notably small. There were exceptional net inflows of people to the UK during the depression years 1930- 1938 and again in 1979, 1983-1987 and 1989-1991.

Britain has also been a significant supplier of capital, especially during the first half of the period 1816-1991. The average current account surplus over the entire period was 1.5 per cent of GNP; for 1870- 199 1 it was 1.4 per cent. Between 18 16 and WW1, the UK had a current account surplus in 93 of the98 years. Between 1915 and 1991 it had deficits in 38 years and surpluses in 39 years. The deficits were concentrated mainly around the war years (WWl, WW2), the depression years, 1964-1977

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and 1987-1991. The average surplus from 1915-1991 was only about 0.54 per cent of GNP, indicating that the most significant foreign lending occurred before about 19 15.

Table 1 (page 254) summarizes average annual values of IMMUK, CURRUK and real growth per capita (in GNP) on ten year sub-intervals for 1820-1991. While emigration from the UK remained high (on average) between 1840 and 1919, the rate tended to diminish during this period. Capital outflows peaked in the 1880s well after labour emigra- tions had peaked. WWl was a decisive period for the analysis of UK factor outflows with a substantial reduction in size and a change in the direction of flows. Contrary to widespread impression, growth rates in UK output per head havenot fallen markedly since WW2 compared with 1872-1939. Growth post-WW2 has remained at moderately high levels in per capita terms. While this evidence may surprise those who see labour emigration as a way of boosting the living standards of non- emigrants, it is not inconsistent with a more neoclassical view of the factor migration process (namely, that labour emigrations are welfare and growth prospect reducing for emigration source countries) with the departure of factors of production reducing internal trade possibilities in source countries6

Having said this, generalization about trend behaviour over such long periods raises many difficulties. In particular one must avoid claiming too much about the “episodic” character of capital and labour migrations from the UK. Over the crucial period 1870-1991 the UK variable CURRAT was stationary (without time trend) at the 5 per cent signific- ance level using both Augmented Dickey-Fuller (ADF) and Phillips- Perron (PP) tests (Clarke and Martin, 1995). This suggests that there was no tendency for the capital flow rate to move out of alignment persist- ently. This is an interesting finding and one that can easily be rational- ized. Over this 120-year period the UK has moved from being a major capital exporter to an importer. However, rates of capital transfer have been subject to substantial variability through time so that recent move- ments of the UK current account into deficit can be viewed as temporary in terms of past experience. Also, even though on average the UK has maintained a net rate of capital outflow over this period, the stationarity finding suggests a long-run tendency of the current account towards balance. Moreover, this finding is not peculiar to UK experience. For example, Clarke and Martin (1995) show this to be true for migration destination countries such as Australia, Canada and the US over the same period.

The UK immigration rate is more intertemporally stable than the capital flow rate so the shift from being a country of high emigration to one of

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low emigration does reliably suggest a long-term trend. The ADF and PP tests applied to data from 1870 to 1991 suggest stationarity of the emigration rate about a decreasing linear trend. Again, Clarke and Martin (1995) suggest similar long-term behaviour for other c~unt r ies .~

LONG-TERM UK EMIGRATION AND CAPITAL EXPORT EXPERIENCE

Population and emigration

There was a remarkable acceleration in UK population growth from about 1750 to 1820. From 1781 to 181 1 the population of England and Wales grew by 38 per cent. Growth in Ireland was apparently consider- ably higher. Between 1750 and 1841 the population of the UK doubled (Deane and Cole, 1962: 5-9). The reasons for this high growth are imperfectly understood. The growth of cottage and factory industry may have encouraged earlier marriage while medical advances (e.g., inocula- tion against smallpox) may have reduced death rates. Various incon- clusive hypotheses are discussed in Coleman and Salt (1992: 35-52). Because acceleration in UK population growth reflected general trends throughout Europe at the time, growth could not be entirely attributed to industrialization which was concentrated in the UK. Some of the sub- stantial internal migration to cities from the countryside led to substan- tial UK net labour emigration.* While the Napoleonic Wars had reduced emigration to negligible levels, their end in 1815 also brought “the end of the demand for the materials of war” (Carrier and Jeffrey, 1953: 20) as well as an economic crisis with poor harvests and widespread hunger. The UK was both industrializing and importing much of its food. Large sections of the workforce were plunged into poverty. Emigration was seen by government committees at the time as a way of removing those who were a drag on the country (paupers and criminals) and as a way of reducing excessive rural population.

Emigration therefore was officially encouraged. In 18 19 financial sup- port for emigration began with &50,000 public assistance for emigration to the Cape of Good Hope. Four similar appropriations were made between 1821 and 1827 and local administrations in UK colonies were instructed to assist emigrants after 1826. For example, from this time through to 1924 about 1 million emigrants to Australia received state assistance. And between 1793 and 1860, the UK sent 113,000 convicts to Australia. In 1823 funds were allocated to help families settle in Canada and, in 1829, 500,000 acres of land were allocated by the Government of Canada for this p u r p ~ s e . ~

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With this assistance, and due to other push pressures, emigration in- creased steadily from 2,000 in 18 15 to 103,000 in 1827. The abolition of a law prohibiting the emigration of skilled workers further stimulated this process. Emigration was inhibited in 1838 following insurrections and Anglo-French conflicts in the Americas and continuing recession in the early 1840s in Australia. However growth resumed following improvements in emigrant transportation and the UK’s worsening eco- nomic situation. In 1845 the Irish potato crop failed partially and in 1846 failed completely. The massive outflow of British emigrants to the New World comprised mainly impoverished and near-starving Irish. Irish emigration was an “unparalleled example of mass emigration” (Thomas, 1973: 72). In 1788 Ireland’s population was 4.4 million; in 1841 it was 8.2 million, but in 19 1 1 it was 4.4 million again. Between 1841 and 185 1 , when the population of Ireland declined by nearly 20 per cent, emigra- tion was almost a pure “push” phenomenon.

In the 1840s UK emigrants went mainly to Canada which responded by imposing taxes to discourage entry. They were then diverted to the US particularly when, in 1847, gold was discovered in California. Discovery of gold in Australia in 1851 diverted some emigrants there and in- tensified the emerging role of immigration pull. Aggregate emigration peaked at 358,000 in 1852 with the great Irish exodus lasting until 1853. In 1854 conditions improved in Ireland and the Crimean War began. By 1857 conditions had improved in the UK and deteriorated in the US. Emigration therefore slowed through to 1861 when civil war broke out in the US because of both diminished push and pull influences. This US conflict not only stimulated emigration demands but also caused a cotton famine in Lancashire that incited people to leave. Also, Australia offered inducements to friends and relatives (of settlers) to emigrate, including some prosperous persons, although as numbers migrating increased so did the proportion of labourers and unskilled (Baines, 1985). In 1869, following acute economic problems in England and Wales, numbers leaving exceeded those leaving Ireland for the first time. Emigration grew steadily to 1873.

Between 1873 and 1914 UK emigration varied with fluctuations in business conditions. Initially poor economic conditions in the UK and then overproduction crises in Europe and the US shaped events. Then in the 1890s improving UK conditions and worsening US and Australian economic conditions tempered the emigrant flow. The two major booms in emigration from 1879-1893 and 1899-1914 were related closely to rising capital exports and falling home investment (Cairncross, 1953; Thomas, 1973). Carrier and Jeffrey (1953: 33) saw the turn of the century as a turning point. Now pull rather than push factors became crucial with emigrants focusing more on safe, cheap transport and better

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prospects in other countries. From 1900 to 1913, emigration from England, Wales and Scotland reached its peak.

With the imposition of strict entry barriers by countries of immigration after the beginning of World War I, the era of mass emigration came to an end. In 1921 the US introduced the Quota Act followed by the Immigration Restriction Act of 1924 and the National Origins Quota of 1929, all of which acted to restrict immigration. Contrary to these tendencies, emigration from the UK to Australia and Canada during the 1920s and early 1930s was subsidized in various ways although land schemes in Western Australia and Victoria were expensive failures. Most emigration (about 60 per cent) during this period was unassisted.

The depression of the 1930s ended emigration. Significant return migra- tion occurred. Carrier and Jeffrey (1953: 37) attribute this decline to the development of social security schemes (pensions and insurance) in the UK as a factor restricting risk-averse potential emigrants. Officially, emigration was not encouraged because with a declining buth rate and an ageing population, it could prove socially harmful. Indeed, emigra- tion virtually ceased until WW2 was over.

Between 1945 and 1950 there was a recrudescence of significant emigra- tion. The war had led many Britons to seriously consider the possibilities of a better life overseas. With the restoration of shipping, countries such as Australia provided generous Assisted (and, for some ex-servicemen, Free) Passage Schemes. Although severe housing shortages in Australia posed difficulties for immigrants, one third of UK emigrants between 1948 and 1950 went to that country. Emigration to Canada was not so great due to lack of assisted passages and restrictions on the export of sterling to dollar economies.

Significant though variable, emigration continued through the 1960s and 1970s, and for a brief period (1959-62) was offset by immigration from new Commonwealth countries. This ended with restrictions under the Commonwealth Immigrants Act of 1962. A second phase of net im- migration occurred after the early 1980s." 1

Capital exports

While British capital exports in the fifty years after 1865 had a sub- stantial impact on the development of the whole world economy, it is necessary, when considering capital exports, to distinguish those funds brought in by emigrants themselves, those imported by others either as a cause (or effect) of emigration and those introduced independently of emigration. Owner-accompanied transfers on the current account can be

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ignored because historically they have been small. Migrants during the large nineteenth century migrations probably did not take much capital with them because they were not wealthy. Paish (1910: 182) estimated that from 1898 to 1908 US immigrants brought $50 per head while Viner (1924: 41) estimated $138 per head for Canada (1900-1913) and for Australia Wilson (1931) estimated &12 per head in 1914 and about &25 per head in the 1930s, which was between 5 and 19 per cent of total capital imports during those periods.

From the end of the seventeenth to the start of the twentieth century UK merchandise exports increased from about 5 to 14 per cent of national income (Deane and Cole, 1962: 28-29). By the 1880s they were 36 per cent of national income. Exports exceeded imports, the balance covering invisibles and net foreign investments. With this growth in trade there was also an expansion of foreign investment during the eighteenth century, especially in the colonies and particularly the Americas (includ- ing the West Indies). Figure 1 shows expansion of capital exports from 1816 to the late 1850s with a transitory slowdown during the Irish famines (1 846-1847) and several other short-term slowdowns. Through to the late 1850s there seems to have been very little relation between capital exports and labour emigration. The lrish famines and the gold discoveries in California and Australia had striking effects on levels of labour emigration but very little effect on capital outflows."

However, the US Civil War, the Crimean War and improved conditions in Ireland which had the effect of choking off emigration in the early 1860s was also accompanied by reduced capital exports. A marriage between capital and labour outflows then developed through to the mid- 1930s. From 1860 to 1873 UK capital outflows increased steadily and by 1872/73 averaged about 7 per cent of GNP. Outflows declined to 1880 (2.5 per cent of GNP) before increasing again to 7.3 per cent in 1890, declined to less than 1 per cent in 1901 and then rose to an all-time peak of about 9.3 per cent of GNP in 1913.12 Outflows fell during WW1, then surged briefly after the war at 5.8 per cent of GNP in 1920, but fell to almost zero in 1930. Over the seventy year period as a whole there were clearly defined peaks in outflows in 1872,1882,1890,19 13 and perhaps 1920 and well-defined troughs in 1862, 1878, 190 1, 19 18 and 1934.

These peaks in capital outflows were related closely to the business cycle: the peaks in outflows noted above are almost synchronous with estimated cyclical peaks in GDP in 1873, 1883, 1889, 1913 and 1920 (Matthews, Feinstein and Odling-Smee, 1982: 295). The relations with troughs are less clear-cut but after 1873-1974 Matthews et al. identify troughs at 1879,1904,1921 and 1932 so there is a link with such cyclical downturns in GDP.I3 These issues can be considered in stock not flow

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terms. Matthews et al. present estimates of net overseas UK assets as a ratio to GDP from 1856 to 1973. These increased from 0.4 to 1.8 times GDP over the period 1856- 19 1 3 and then declined to reveal a net debtor status of 0.05 times GDP in 1951. By 1973 the UK had again become a creditor nation though with low net foreign asset holdings of between 0.06 and 0.12 times GDP. The main period of growth in the UK’s external assets was from 1870-1913 when Hall (1968: 1) estimated that capital exports summed to S3.5 billion. The two world wars played a substantial role in devouring this accumulated wealth. Fifteen per cent of the UK’s external assets were wiped out by WW1 and 28 per cent by WW2 so, during the forty years after WW1, the total real wealth of the UK scarcely increased (Matthews et al., 1982: 130).

Sources of the empirical estimates of capital flow are set out in the Data Appendix (page 247). The intention is to provide a continuous series from 18 16 so the current account surplus is used as an indicator of flows. This has the obvious disadvantage of not accounting for gold and foreign exchange movements. More reliable time series estimates of various capital export data over much shorter time periods are surveyed by Simon (1967).

It would be desirable to distinguish short-term from long-term capital flows were this practicable. While this is of interest, and worth attempt- ing even given difficulties in distinguishing long-term net capital ex- ports, it does not follow that substantially different conclusions would eventuate with respect to labour links. Short-term capital movements facilitate borrowings in destination countries and reduce them in source countries. If such borrowings are related to investment not consumption they imply a link between labour emigrations (which stimulate long- term investment opportunities) and short-term capital exports. More- over, short-term capital movements are likely to be stimulated by migratory labour’s effects on interest rates. This is a matter we are currently investigating.

EMIGRATION, CAPITAL EXPORTS AND ECONOMIC ACTIVITY 1860 TO WW2

Evidence provided by Clarke and Smith (1996) shows that in countries of immigration such as Australia and Canada high rates of immigration have historically been associated with substantial current account defi- cits and capital inflows. This suggests that high emigration rates in source countries such as the UK should be similarly associated with substantial capital exports.

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For particular historical episodes the connection is clear. About two thuds of UK emigrants between 1870 and 1900 sailed for the US which was simultaneously the UK’s biggest debtor. Between 1900 to 1914 the UK invested over E300 million in Canada at a time when more than one million UK migrants settled there.14 There is also a single important period where labour emigration was uncoupled from capital outflow. In the decade prior to the failure of the Irish potato crop and subsequent discovery of gold in California and Australia, emigration surged but capital outflow did not increase. The reasons for the breakdown in relationship during this period are presumably related to the push nature of the emigration and the assistance given to overseas settlement. Much of the Irish emigration to the US during this period was financed by US capital outflows sourced from Irish settlers already established in the US.

The long-term macroeconomic data after 1860 are more supportive of a strong link between the two types of factor movements and one which persisted over a very substantial period. Figure 2 (page 252) shows the relation between emigration and capital exports from 1861-1930. Despite inevitable substantial measurement inaccuracies, the correlation between IMMUK and CURRUK (the variables used to measure the respective flows) is very substantial (as indeed Figure 1 indicates during the entire period 1820-199115).

Evidence of linkages between capital outflows, economic activity and labour emigration raises the difficult issue of what caused what. We have already asked: did labour emigrations induce capital outflows (“capital chasing labour”)? Did capital works in the New World drag in labour (“labour chasing capital”)? Did the business cycle drive both types of factor‘ flows? Explanations have some validity in terms of historical experience and it would be wrong to adopt a single-minded perspective.

The traditional approach has been to investigate the cyclical character- istics of the respective time series. Jerome (1926) and Thomas (1973) provide partial evidence on the cyclical characteristics of emigration and of real investment (particularly in housing and railroads) during the period 1870-1913 in the UK and the US. Thomas (1973) is most interested in medium-term cyclical fluctuations (“Kuznets cycles”) of about 20 years duration over this period.

Our data suggest high cyclical synchronization between UK and the US economic activity between 1870 and 1913. The simple contemporan- eous correlation between UK real GNP and that of the US is r = .96 ($= .92). Moreover, labour emigrations from the UK showed weak evidence of leading UK capital exports with emigration lagged one year correlated with current account deficits (r= .67,r2= .43). The correlation

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between IMMUK and CURRUK lagged one year was only r = .46 ( r 2 = .21). There is thus weak evidence that “capital chased labour” rather than the reverse (at other lags correlations are even lower) in the simple sense that current labour movements better explain forthcoming capital exports than the reverse.

This is a rough procedure since IMMUK, because of the normalization procedure used, is inherently more stable than CURRUK. Thus there is less intrinsic variability left to explain. We therefore tested more rigor- ously the proposition that emigration was a useful predictor of capital flows over the periods 1870-1913 and 1870-1991 using Granger and Sims causality tests and by investigating impulse response functions (Granger, 1980; Sims, 1980). Using annual data, CURRUK was re- gressed on lagged values of itself and IMMUK with lags extending back ten years. Then lagged values on IMMUK were introduced into the CURRUK regression and lagged values of CURRUK into the IMMUK regression to test if the explanatory power of the autoregression was increased. The relevant tests confirmed that labour drove capital over the complete interval 1870- 199 1 but that the relationship was only weak over the shorter (but most interesting) period 1870- 19 13. At reasonable significance levels we could not reject the hypothesis that emigration exerted no causal influence on the current account over this shorter interval.

Further work might yield more information. Our finding that labour chased capital over the entire period was replicated (as should be expected if the UK finding is sound) in destination countries such as Australia and Canada although not in the US. Moreover, even with respect to the US, we calculated an impulse response function (IRF) which showed that the impact of cumulative immigration rates on capital inflow rates was very significant and similar to that obtained for the UK: the respective IRFs for the UK and US are given as Figures 4 and 5 (pages 253-254). Given the symmetry between source and destination countries and that the data sets were independently compiled, this similarity of response of current accounts to a unit pulse in migration is comforting. Initially the impulse forces the current account in destina- tion countries into deficit as migrants spend more than they earn. As migrants become net savers, current account pressures are toward surplus. The steady state, or long-run effects, of a migration pulse are to worsen the current account in the destination country and improve it in the source country, so initial effects dominate longer-run effects (Clarke and Martin, 1995).

For the period as a whole, there is evidence that labour flows drove capital flows with understandable dynamic adjustments. However, be-

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cause of the mixed “sub-period” results there is some inconclusiveness in these causality tests. One can criticize the methodology in various ways, e.g., the causality definition is narrow. But, short of a full econometric approach, which requires a more substantial data base than is currently availableI6 these causality tests seem to be the most decisive way of resolving causality issues using bivariate tests.

An alternative approach is to draw on simple business cycle indicator approaches and direct evidence on timing. This turns out to be problem- atic because of the high degree of synchronization between peaks and troughs in the respective factor flow series. An even more curious piece of evidence in this regard is the tendency for labour emigrations to peak at times when the UK business cycle peaked. Between 1873 and 1930, emigration from the UK experienced peaks in 1873, 1883, 1888, 1907, 19 I2 and 1920. The Matthews et al. ( 1 982) data suggest peaks in UK economic activity in 1873, 1883, 1889, (1899), 1907, 1913 and 1920 (only the bracketed year does not show a corresponding Bmigration Peak).

Why are these emigrations related to improving UK economic condi- tions? One answer is to suppose even more favourable procyclical fluctuations in economic activity in countries of immigration. A related factor might be that financing emigrations was often carried out by relatives already living in destination countries, a view that is consistent with early theories of linkages between immigration and the business cycle (Jerome, 1926; Isaac, 1947). Isaac argued that with the com- paratively free migration from 1860 to the early 1920s business cycles in different countries should be linked by migration of both capital and labour. Jerome argued that this evidence suggested that emigration flows destabilized countries of immigration by further stimulating eco- nomic activity, thereby increasing incentives to migrate during a boom. In other words, pull factors were dominant influences on factor move- ments. ‘’

FACTOR MOVEMENTS7 POPULATION AND THE GREAT DEPRESSION

The Great Depression of the 1930s marked a major turnabout in British factor exports. The UK turned from being a net exporter of factors to a net importer. In 1930 net labour emigration from the UK, which had been positive since WW1, almost ceased and up to at least 1938 net emigration was negative, i.e. there was net labour immigration. Simul- taneously, the UK turned from being a consistent capital exporter since the end of WW1 to a capital importer in 193 1. Apart from the single year 1935, the UK remained a capital importer to 1947.

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It is noteworthy that two debates arose from this experience: the first related to appropriate immigration policies during a period of deficient aggregate demand. This debate must have originated during the Great Depression. The second related to the way population growth slowdowns can lead to recession.

During the Depression it was widely observed that rapid immigration can stimulate aggregate demand and therefore reduce unemployment. A common slogan was that “every migrant has a mouth and two arms and his children have a mouth and no arms” (Isaac, 1947: 217). This idea led Britain to adopt a policy encouraging the immigration of persons in non- working-age groups (below 18 or above 60 years of age) who could increase aggregate demand without contributing to supply. Similar policies were pursued in France, Switzerland and several Central Amer- ican countries. These types of arguments periodically recur: in Australia, e.g., in the 1990s, as a way to reduce unemployment.

Strong arguments were also advanced in the 1940s concerning the role that the slowdown in population growth had played in causing the Depression. For example, in the US industrial population grew by 10 per cent from 19 16 to 1922 and by a further 10 per cent from 1922 to 1928. Between 1930 and 1936 it grew by only 3 per cent. Similarly, total US population grew by 9.1 per cent between 1922 and 1928 but by only 4.3 per cent between 1930 and 1936 (Isaac, 1947: 220-221). Keynesians argued that this reduced population growth had led to inadequate demands for capital goods particularly by way of con- tractionary housing demands. “During the Great Depression, accord- ingly, there did not develop any such backlog of housing shortage as had developed in the period 19 16- 1920, and there was not the pressure from a continued rapid growth in population such as occurred in the period 1922-28. The ‘extensive’ or expansionist outlets for investment in housing, incident to population growth, are thus in large part gone” (Hansen 1940: 300).

DEVELOPMENTS SINCE THE 1930s

Between 1930 and 1950 the main feature of UK labour migration was the disappearance of net emigration and the emergence of a small but diminishing net immigration. Data on migration during World War I1 are unavailable although one can assume that it was negligible. As noted above, the war caused massive reduction in UK external assets. Since 1950 the UK has experienced low and diminishing levels of emigration and since 1983 there has been significant net immigration. Capital outflows have been unstable, having recently given way to substantial net inflows (Figure 3, page 253).

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Clarke and Martin ( 1 995) replicated the types of causality tests discussed earlier for the periods 1914-1949 and 1950-1991 and confirmed the earlier finding that there seemed to be no evidence of causality running from emigration to capital (or the reverse). There was again no support for the proposition that UK emigration had Granger-caused the UK current account. This is not surprising given the relatively low levels of emigration observed and reversal in the direction of capital flows.

CONCLUSIONS

In a descriptive statistical sense there has been a close relation between UK capital exports and emigration for the past 170 years. The relation was particularly strong during the period 1860 to 1930. Migration reached a peak in the 1840s and 1850s while capital exports peaked in the 1880s. The period of joint strong factor outflows ended around 191 3 though a continued strong relation between the outflows continued through to around 1930.

Labour emigrations reflected a mixture of push and pull influences. Emigration associated with the Irish potato famine was due primarily to push factors though the subsequent tendency for peaks in emigration to coincide with peaks in UK economic activity seem to reflect mainly pull influences. These became progressively more important as the phase of high joint factor flows continued.

Relations between capital exports and emigration for the UK generally seemed more complex than corresponding relations between capital imports and immigration to countries such as Australia and Canada. Why? One explanation could be that the US differed from other high labour immigration countries by being a capital exporter in the latter phases of its nineteenth century development. These exports would depend on events in the rest of the world and not just local events. The same may be true for the UK which has been both a capital and labour exporter since 18 16. Those pull factors attracting UK capital may differ from the pull factors attracting UK labour, thereby complicating the analysis of the common factors driving both capital and labour exports.

The relation between capital flows and labour emigration, while close in certain periods, remains ambiguous. The simple statistical tests carried out did not suggest emigration induced capital flows even during the period 1870 to 191 3 when Thomas ( 1 973) argued such a relation was strong. Neither was the reverse causality indicated; there is no evidence that “labour chased capital”. These independence findings are replicated for 19 1 4 1949 and 1950- 199 1 , although such findings are of less interest

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because of the much-reduced scale of factor migrations during these later periods.

Even with these qualifications, the long-term relation between capital flows and emigration from the UK is too persistent and too close to be ignored. Even if factor movements are not causally related, the associa- tion that does exist means it would be misleading to attempt to understand the impact of each factor movement in isolation.

DATA APPENDIX

Population (Annual): 1885-1987: Source 3uk, Table UK.9, pp. 38-39.1988- 1991: Source 4uk, June 1993.

Immigration (Annual): 1885-1980: Source 6uk, Tables 22B, 23,24- Popula- tion and Vital Statistics, pp. 82-84. 1981-1991: Source luk, 1993 edition, Table 2.11, p.18.

Gross Domestic Product (Annual): 1885-1979: Source 3uk, Table UK. 1, pp. 20-21. 1980-1991: Source 5uk.

Current Account (Annual): 1885-1982: Source 3uk, Table UK.16, pp. 52-53. 1983-1991: Source 2uk, Table 29, p.56.

Terms of Trade (Annual): 1885-1979: Source 3uk, Table UK.8, pp. 36-37. 1980-1985: Source luk, 1991 edition, Table 12.1, p.222. Data was spliced backwards from 1980 with the Source 3uk data. 1985-1991: Source 2uk, Table 27, p.52.

United Kingdom Data Sources: luk. Central Statistical Office, Annual Abstract of Statistics, HMSO,

London. 2uk. Central Statistical Office, Economic Trends, June 1993, No. 476,

HMSO, London. 3uk. The Economist (T. Liesner - Compiler), 1989, One Hundred Years

of Economic Statistics, The Economist Publications, London. 4uk. International Monetary Fund, International Financial Statistics,

Publication Services, IMF, Washington, D.C. 5uk. International Monetary Fund, International Financial Statistics

Yearbook, 1992, Publication Services, IMF, Washington, D.C. 6uk. Mitchell, B.R., 1988, British Historical Statistics, Cambridge

University Press, Cambridge.

247

NOTES

1.

2.

3.

4.

5.

6.

7.

8.

9.

I acknowledge with thanks the helpful, critical remarks of two anonymous referees. These points are emphasized in relation to the Canadian investment boom 1900-1913 by Cairncross (195357-58). Thus the emigration rate is a negative number whenever there is a net outflow of people from the UK in any year. In those years where the UK was a net immigration country IMMUK is a positive quantity. Thus when the UK is exporting capital and therefore running current account surpluses, CURRUK is a negative quantity while when the UK is a capital importer (as it has been in many years since WW2) CURRUK is positive. A referee points out that normalizing emigration using aggregate popula- tion relates a flow to a stock while normalizing capital exports by GNP relates one flow to another. A consistent normalization would relate capital exports to net capital stock. Data unavailability prevents this normalization for the period investigated. The alternative capital export normalizations are equivalentif the economy's capitaVoutput ratio is constant - an assump- tion portrayed as a'ktylized fact" in neoclassical growth theory (Burmeister and Dobell, 1970: 65). In the short-run, however, output is cyclical while population is not biasing the normalization we adopt toward the view that capital flows are less stable than emigrations. This is a view many economic historians are loathe to accept. Their reasoning is that emigration leaves non-emigrating residents with more capital or more land. This ignores the issue of capital's (land's) ownership. If capital (land) is mainly owned by non-emigrants (it is typically assumed that emigrants take little capital or claims to land with them) then that capital will be less effectively serviced by labour once migrants depart. Thus rents on the assets will fall though wages will rise because of reduced labour supplies. Standard theory proves these rent losses exceed the wage gains (Berry and Soligo, 1969). Recall from footnote 5 that, since capital exports are normalized by a flow, they should display more cyclical instability than emigrations normalized by population stock. Lest there be confusion, however, this is distinct from the point being made here which relates to the existence of non-stationary long-term trends in each series. These exist for emigrations but not capital exports. This is not to say that those who did migrate were mainly farmers. The view that UK emigrations were mainly rural-sourced in the early stages of the UK emigration movement has been challenged by Erickson (1 989,1990). Her evidence suggested that, for 1841, only between one-fifth and one-third of English emigrants came from agricultural occupations or were farm labourers. Although assisted migration was significant it was minor relative to total emigration over the period (Wilcox, 1929: 102; Wilcox, 1931: 245).

10. Regular emigratiodpassenger statistics start in 1815 but up to 1912 relate to the carriage of passengers (including foreigners) on UK ships. These statistics were collected to enforce safety regulations in terms of numbers carried and vessel weight - not to provide a guide to emigration

248

trends. The statistics also do not distinguish between those intending to reside abroad and short-term travellers. After 1853 it became possible to estimate alien numbers travelling but, because of lower transport costs, the number of short-term travellers also then increased dramatically so that errors in this regard became more important. For discussions of this early data see Wilcox (1929: 97-105 and 619-658), Wilcox (1931: 239-282), Carrier and Jeffrey (1953). These sources also provide excellent accounts of the qualitative character of migration from the UK after 1915.

1 1 . Part of the reason for lack of capital flow in this period was the widespread depression and unemployment in both Britain and the US. Erickson has suggested that the “push of hardship” which forced people out in the 1840s was concentrated among the poor (1989: 367) who may have been less capital attracting than migrants at other times.

12. As Cairncross (1953: 2) writes: “At its peak, in 1913, foreign investment took over half the total of British savings; at its peak too, in the years between 1908 and 1913, foreign borrowing financed over half the total addition to the stock of capital in the largest borrower - Canada”.

13. Lest it is thought that the results here are ex post wisdom, it should be explained that the capital outflow turning points were calculated as local minimum critical points of the CURRUK series.

14. See, e.g. Cairncross, 1953: 209-210. 15. From 1860- 1930 the correlation coefficientr= .65 (f = .42). Over the entire

interval 18 16- 199 1 the correlation was r = .47 (f= .22). 16. A full econometric model testing the proposition that capital chased labour

would desirably exhibit extensive disaggregation by region. O’Rourke, Williamson and Hatton (1994: 212) argue that between 1870 and 1910 almost all British migrants went to Australia, Canadaor the US but that only 45 per cent of her capital exports went to these countries. This does not indicate that capital was (or was not) chasing labour. The capital thatdidgo to these countries may have been chasing labour or some other factor there. Also in the source country an exogenous labour emigration reduces the marginal product of capital there irrespective of where the labour goes.

17. For areview of traditional econometric studies on the relative scope of push and pull factors on international migration see Gould (1979). These studies look mainly at the impact of international unemployment or income differ- entials on migration.

249

REFERENCES

Baines, D. 1985

Berry, R., and R. Soligo 1969 “Some welfare aspects of international migration”, Journal of

Migration in a Mature Economy, Cambridge University Press.

Political Economy, 77: 778-794.

Mathematical Theories of Economic Growth, Macmillan, New York.

Cairncross, A.K. Home and Foreign Investment, 1870-1 91 3: Studies in Capital Accumulation, Cambridge, England.

External Migration: A Study of the Available Statistics 1815-1950, General Register Office, Studies on Medical and Population Subjects, No. 6, Her Majesty’s Stationary Office, London.

“The welfare effects of labour force growth with internationally mobile capital”, Journal of Population Economics, 6: 79-98. “Stubbornly persistent factor migrations with rapid international economic convergence”, Australian Economic Papers, forth- coming.

“Did capital chase labour internationally?”,Papers and Proceedings of the AustralialNew Zealand Economic History Society Confer- ence, University of Melbourne, March 3 1 - April 2.

“Labour immigration and capital movements: Long-term Austral- ian, Canadian and United States experience”, International Migration Review, forthcoming.

The British Population: Patterns, Trends and Processes, Oxford University Press.

British Economic Growth 1688-1959, Cambridge University Press.

“Emigration from the British Isles to the USA in 1841: Part 1 . Emigration from the British Isles”,Population Studies, 43: 347-367. “Emigration from the British Isles to the USA in 1841 : Part 2. Who were the English emigrants?”, Population Studies, 44: 21-40.

“European inter-continental emigration 18 15- 19 14 Patterns and causes”, The Journal of European Economic History, 8: 593-679.

“Tests for causation - a personal viewpoint”, Journal of Economic Dynamics and Control, 2: 239-252.

The Export of Capital f.om Britain 1870-1914, Methuen and Co. Ltd, London.

Burmeister, E., and A.R. Dobell 1970

1953

Carrier, N.H., and J.R. Jeffrey 1953

Clarke, H. 1993

1996

Clarke, H., and V. Martin 1995

Clarke, H., and L. Smith 1996

Coleman, D., and J. Salt 1992

Deane, P., and W.A. Cole

Erickson, C.J. 1962

1989

1990

Gould, J.D. 1979

Granger, C.W.J. 1980

Hall, A.R. (Ed.) 1968

250

Hansen, A.H. 1940

Isaac, J. 1947

Jerome, H. 1926

Full Recovery or Stagnation, A. and C. Black, London.

Economics of Immigration, Kegan Paul, Trench, Trubner and Co., London.

Migration and the Business Cycle, National Bureau of Economic Research, New York.

British Economic Growth 1856-1973, Clarendon Press, Oxford.

“Mass migration, commodity market integration and real wage convergence: The late nineteenth century Atlantic economy”, in T.J. Hatton and J.G. Williamson (Eds), Migration and the Inter- national Labour Market 1850-1939, Routledge, London and New York.

Matthews, R.C.O., C.H. Feinstein and J.C. Odling-Smee

O’Rourke, K., J.G. Williamson and T.J. Hatton 1982

1994

Paish, G. 1910 The Trade Balance of the United States, National Monetary

Commission, Washington.

“The pattern of new British portfolio foreign investment, 1865- 1914”, in J.H. Adler (Ed.), Capital Movements and Economic Development, Macmillan, London and Melbourne.

“Macroeconomics and reality”, Econometrica, 48: 1 1 1-48.

Migration and Economic Growth: A Study of Great Britain and the Atlantic Economy, 2nd Edition, Cambridge, England.

The Balance of Canada’s International Indebtedness, 1900-1 913, Harvard University Press, Cambridge, Massachusetts.

1929 International Migrations, Volume I Statistics, National Bureau of Economic Research, New York.

193 I International Migrations, Volume 11 Interpretations, National Bureau of Economic Research, New York.

Capital Exports and the Terms of Trade Examined in the Light of Sixty Years of Australian Borrowing, Melbourne University Press, Melbourne.

Simon, M. 1967

Sims, C. 1980

Thomas, B. 1973

Viner, J. 1924

Wilcox, W.F.

Wilson, R. 1931

25 1

FIGURE 1

UK IMMIGRATION RATES AND CAPITAL INFLOW RATES 1820-1991

0.004 T T 0.12

$ 0 a: C

-0.004 e E -0.008 E

cn ._

- Y 3 4.012

-0.016 1 - 1

0 08

0 04

0

-0 04

-0 08

-0.12

FIGURE 2

UK IMMIGRATION RATES AND CAPITAL INFLOWS 1861-1930

a, m c a

Y 3

252

FIGURE 3

UK IMMIGRATION RATES AND CAPITAL INFLOW RATES 1950-1991

0 w2 0.04

0.04 (u c

$ 002 g

s - 0 s

a m E 0

Y 4.02 y 3 3

(u OW1 m K c 0 - 0

Ul

c

G c .- - .- .-

- 4.m

am2 404

FIGURE 4

IMPACT OF IMMUK ON CURRUK: UK DATA 1870-1991

0.25 -

0.1

0.05

-- --

- ; : , , - 1

2 13 14 15 16 17 18 19 20

Year -0.1 -

253

FIGURE 5

IMPACT OF IMMUK ON CURRUK: US DATA 1870-1991

0.2 -

Year 0.05 --

o - ; ; ; : ; ; ' 2 3 4 5 6 7 8

-0.05 - -

I -0.1

TABLE 1

AVERAGE IMMIGRATION AND CAPITAL EXPORT RATES AND ECONOMIC GROWTH 1820-1991

1820-1 839

1840-1 859

1860-1 879"'

1880-1 899

1900-1 91 9

1920-1 939'

1940-1 959"

1960-1 991

IMMUK CURRUK REAL GROWTH PER CAPITA

-.0018

-.0069

- .0047 -.0035

-.0029

-.0001

-.0001

-.0005

-.013

-.014

-.039

-.043

-.038

-.009

+.024

+ .002

?

?

.0156

,0247

,0105

.0134

.0213

.0234

IMMUK value up to 1938, ** IMMUK value starting in 1946, *** REAL GROWTH from 1872-1879 only. Estimates of GNP are available only after 1870 so IMMUK and CURRUK values t years prior to 1870 are calculated by deflating emigration and capital flows by GNP in 1870 divided by (1.02)'.

254

EMIGRATION DE MAIN-D’OEUVRE ET EXPORTATION DE CAPITAUX DU ROYAUME-UNI ENTRE 18 16 ET 199 1

L’auteur analyse les liens entre 1’Cmigration de main-d’oeuvre et les exportations de capitaux depuis le Royaume-Uni A partir de 18 16. Cet ouvrage complkte les analyses des flux d’immigration de main-d’oeuvre et d’importation de capitaux en Australie, au Canada et aux Etats-Unis sur une pCriode 1Cgkrement plus courte (Clarke et Smith, 1996).

Jusqu’en 1860, I’Cmigration de main-d’oeuvre au dCpart du Royaume- Uni s’est accrue beaucoup plus rapidement que les exportations de capitaux, surtout avec les pCriodes de famine qui ont touch6 1’Irlande en 1846-1847, ce qui s’est traduit par une augmentation brutale de 1’Cmigration de main-d’oeuvre qui ne s’est pas accompagnke - loin s’en faut - d’une exportation parallde de capitaux. De 1860 a 1930, un parallklisme entre exportation de capitaux et exportation de main- d’oeuvre s’est instaurk, ces deux facteurs revstant une importance Cgalement considkrable et variant cycliquement avec le niveau d’activitk Cconomique du Royaume-Uni. Les avoirs Ctrangers et les niveaux d’exportation de capitaux ont atteint un record absolu en 191 3. Les deux guerres mondiales et la grande dkpression ont concouru a Cponger entikrement les avoirs Ctrangers dCtenus au Royaume-Uni. Au len- demain de la seconde guerre mondiale, le Royaume-Uni a connu une faible Cmigration de main-d’oeuvre, accompagde, dans une modeste mesure, d’une augmentation d’importance variable des dkficits de comptes courants dans une phase de croissance Cconomique modCree.

Quelle a CtC la nature des liens entre 1’Cmigration de main-d’oeuvre et les exportations de capitaux du Royaume-Uni? L’Cmigration de main- d’oeuvre a domink au dCbut et semblait devoir stre attribuCe essentiellement aux facteurs d’incitation. Progressivement, les facteurs d’attraction sont devenus plus importants en tant que facteurs deter- minants de 1’Cmigration de main-d’oeuvre 5 mesure que se dCveloppait la phase de haute conjonction des facteurs de flux (de 1860 a 1913). I1 faut toutefois observer que les facteurs d’attraction exergant une influ- ence sur les exportations de capitaux du Royaume-Uni peuvent diffCrer des facteurs d’attraction influant sur les migrations de main-d’oeuvre, ce qui complique l’analyse des facteurs dCteminants de la conjonction des flux. Les statistiques rCunies ne confirment ps I’hypothkse selon laquelle le capital aurait chassC la main-d’oeuvre, ou l’inverse, mCme durant les pCriodes de haute conjonction des flux. Par conskquent, s’il existe indkniablement un lien Ctroit entre les facteurs respectifs de flux, la nature de la causalit6 favorisant ce lien n’est pas Claire. I1 n’est dks lors pas surprenant que de simples explications analytiques de la conjonction des facteurs de flux ne puissent pas s’appliquer sur une tranche aussi large de l’histoire du Royaume-Uni.

25 5

LA EMIGRACION LABORAL Y LA EXPORTACION DE CAPITALES DEL REIN0 UNIDO 18 16- 199 1

La relaci6n entre la emigraci6n laboral y la exportaci6n de capitales en el Reino Unido se analiza a partir de 1816. En este documento se complementa el anilisis de la inmigraci6n conjunta laboral-capital hacia Australia, Canada y 10s Estados Unidos durante un periodo algo m b corto (Clarke y Smith, 1996).

Hasta 1860, la emigraci6n laboral del Reino Unido aument6 mas rapida- mente que la exportaci6n de capitales en raz6n de la crisis de hambruna que afect6 a Irlanda entre 1846 y 1847 y que foment6 la emigraci6n laboral per0 que no estuvo acompaiiada de una exportaci6n de capitales. Entre 1860 y 1930 se estableci6 una alianza entre las exportaciones de capitales y las inmigraciones laborales que dieron lugar a dos con- siderables corrientes que variaban prociclicamente conforme a la activi- dad econ6mica del Reino Unido. Las tenencias en fondos extranjeros y 10s niveles de exportaci6n de capital alcanzaron su maxima en 1913. Las dos guerras mundiales y la gran depresi6n trajeron consigo la partida de las disponibilidades de fondos extranjeros netos del Reino Unido. DespuCs de la segunda guerra mundial el Reino Unido experiment6 una baja emigracidn laboral tinicamente asociada con crecientes, aunque variables, dCficit contables vigentes, durante una etapa de crecimiento econ6mico moderado.

iQuC tipo de relaci6n habia entre la emigraci6n laboral y la exportaci6n de capitales en el Reino Unido? Inicialmente la emigraci6n pareci6 dominante debido principalmente a influencias de empuje. Las influen- cias de atracci6n paulatinamente se convirtieron en factores mis impor- tantes para la emigraci6n laboral a medida que se desarrollo una etapa de alta confluencia de factores conjuntos (entre 1860- 19 13). No obstante, las diferencias de atracci6n de capital en el Reino Unido bien pueden diferir de las influencias de atracci6n laboral, lo cual complica el anilisis de 10s factores determinantes de las corrientes conjuntas. Las esta- disticas acopiadas no apoyan la hip6tesis de que el capital hizo huir la mano de obra o viceversa, incluso en 10s periodos de corrientes conjuntas mas intensas. Por ello, si bien existe un vinculo innegable y estrecho entre 10s factores de las corrientes, no esti claro cual es la naturaleza de la causalidad que promueve ese vinculo. Ahora bien no es sorprendente que las explicaciones analiticas simples de 10s factores conjuntos de corrientes no se apliquen a un periodo tan vasto de la historia del Reino Unido.

256