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Military conquest and sovereign debt: Chile, Peru and the London bond market, 1876–1890


Author Info

  • Richard Sicotte

    (University of Vermont, Burlington, VT, USA)

  • Catalina Vizcarra

    (University of Vermont, Burlington, VT, USA)

  • Kirsten Wandschneider

    (Occidental College, Los Angeles, CA, USA)


As a result of the War of the Pacific (1879–1883), Chile conquered Peruvian and Bolivian territories rich in nitrates and guano. We conduct econometric tests for structural breaks in the time series of the government bonds for Chile and Peru between 1876 and 1890 in order to examine the effects of the changes in resource endowments on the investors’ perceptions of the risk premia of Chilean and Peruvian securities. Our results reveal that investors were extremely pessimistic about the prospects of Chilean, and especially Peruvian debt prior to the war. Early Chilean victories that anticipated the transfer of the richly endowed provinces to Chile caused significant increases in the price of Chilean securities. But such was the low regard with which investors viewed the Peruvian government that the fall of Lima caused an increase in the price of Peruvian bonds on the hope that Chile would assume some of the responsibility for them. Endowments, reputations, and the countries’ financial conditions figure prominently as the driving forces behind the investors’ behavior.

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Bibliographic Info

Article provided by Association Française de Cliométrie (AFC) in its journal Cliometrica, Journal of Historical Economics and Econometric History.

Volume (Year): 4 (2010)
Issue (Month): 3 (October)
Pages: 293-319

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Handle: RePEc:afc:cliome:v:4:y:2010:i:3:p:293-319

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Related research

Keywords: Sovereign debt; Natural resources; Nitrates; War of the Pacific;

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Cited by:
  1. Marc Flandreau & Kim Oosterlinck, 2011. "Was the Emergence of the International Gold Standard Expected?Melodramatic Evidence from Indian Government Securities," Working Papers CEB 11-001, ULB -- Universite Libre de Bruxelles.
  2. Tobias A. Jopp, 2014. "How did the capital market evaluate Germany’s prospects for winning World War I? Evidence from the Amsterdam market for government bonds," Working Papers 0052, European Historical Economics Society (EHES).
  3. Flandreau, Marc & Oosterlinck, Kim, 2012. "Was the emergence of the international gold standard expected? Evidence from Indian Government securities," Journal of Monetary Economics, Elsevier, vol. 59(7), pages 649-669.


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