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.