chapter  7
35 Pages

The Private Sector

Douglass C. North attaches a high importance to favorable terms of trade in initiating inflows of capital. Rising prices of American exports made investments in America look promising to foreigners. North emphasizes that up until 1845, and to a lesser degree thereafter, almost every favorable movement in the terms of trade was paralleled by an inflow of foreign capital; unfavorable movements either reduced the inflow or brought an actual outflow.