Specific Factors, Capital Markets, Portfolio Diversification, and Free Trade: Domestic Determinants of the Repeal of the Corn Laws

Abstract

Whereas the Ricardo-Viner specific factors model implies that owners of land and capital stood diametrically opposed to one another on the issue of free trade in nineteenth-century Britain, studies in the economic history literature posit that the economic interests of these two groups of factor owners were not mutually exclusive but rather overlapped as a result of rapid economic changes in the 1830s that intensified landowner diversification into nonagri-cultural ventures. Hence, the former views the repeal of the Corn Laws in 1846 as capital gaining the political upper hand over the landed elite, whereas the latter implies that landowners with diversified portfolios stood to gain from, or simply became indifferent to, free trade in grain. This paper alters the specific factors model to include the concepts of diversification and investment capital flows. It then tests the political implications of diversification, hypothesizing a positive correlation between constituency diversification and parliamentary voting on repeal of the Corn Laws. Both individual and aggregate sets of data confirm that diversified interests contributed to the free-trade policy outcome.