Capital Inflows, Current Accounts and Investment Cycle in Italy: 1861-1913

By relying on a new dataset, this paper presents an econometric strategy to test the Fenoaltea’s thesis with regard to both the genesis of current account fluctuations and of the investment cycle. We perform a Granger causality test that shows that the persistent current account deficits in the years from unification from WW1 were generated by variations in capital inflows, as pointed by Fenoaltea, and not by the dynamics of the GDP, as claimed by the Bonelli-Cafagna model. Finally, this paper supports the Fenoaltea’s thesis that these capital inflows prompted a general investment cycle which included both construction and industrial investments

External constraint and economic growth in Italy: 1861-2000

This paper analyzes the relationship between external constraint and economic growth in Italy from 1861 to 2000. In particular, it investigates whether the persistent current account deficits in the 1861-1913 years constrained output growth. To this aim it studies the genesis of the current account fluctuations, that is whether these were generated by the dynamics of the GDP or by variations in capital inflows. Using integration and co-integration analysis and the Granger causality testing, it shows that in the long run Italy\u2019s external position is sustainable: the Italian economy seems to have used the external deficits (surpluses) to smooth its aggregate consumption. Moreover in the shorter 1861-1913 sub-period, the persistent current account deficits, financed by foreign capital inflows, do not seem to have curbed economic growth