A Historical Survey Of The Foreign Investment Of British Railways In The 19th Century

Capital market played an important role in the development of the British outbound railway investment.With the absence of the government's integrated planning and support,British railways depended heavily on the market institutions to solve its own problems among which money raising stood in the breach.The huge demand for capital,along with the long construction period and slow capital returns made railway investment a highly risky enterprise for the individuals and any small community.What's worse was the fact that the traditional Banking system were reluctant to lend their money due to the long period and uncertainties.Under this background,railway companies took the form of joint-stock system and raised money by flotation.Several famous lines stimulated the railway investment and promoted the establishment of some formal local capital markets which in turn financed the railway construction successfully.In the middle nineteenth century,Britain built up a national railway system.The capital market and the railway companies worked hand in glove and shaped the mode of British outbound railway investment.As early as 1830s,British contractors had already started to invest in European railways due to the invitation from the foreign governments,the expansion of their own business and a strong pursuit for higher returns compared with the domestic decreasing profits.However,many of the European countries such as Belgium and France soon developed their own railway industry and the intervention from the government also inhibited the involvement of British companies.India's situation was quite different.British capital took the absolute control of the Indian railways.The huge capital demand from both the domestic and foreign railways attracted more and more investors.The trade of railway securities gradually concentrated in London and attracted the involvement of more foreign institutions.However,the 1866 Crisis resulted in the bankruptcy of many railway contractor's banks and cut off the direct relation between the railway interest and financial syndicates.There came to a gradual separation between the railway interests and the financial interests.The significant development of the overseas investment from 1870 to 1914 provided an important background for the contemporary railway outbound investment.United States,Argentina and Canada absorbed the most British capital during this period.Since the differences in the mature degree of the railway system,the maturity level of capital market and the influence of British capital,the British railway investment in these three countries also worked in different ways.Due to the rising competition from other countries,British outbound railway investment turned to behave in a more conservative way at the turn of the century.The investors preferred bonds rather than common shares and the Dominion infrastructure securities seemed to be the best choice for them,considering both the profits and the risks.Thanks to the improvement in the communication technology and the increase of foreign flotations and staffs,London capital market became a globe finance centre which further facilitated the development of the City of London and promoted the transformation of British economy.As for some domestic industries,the competition from abroad made it harder to take use of the capital market.