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The Empire Effect: The Determinants of Country Risk in the First Age of Globalization, 1880 1913

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Author Info
FERGUSON, NIALL
SCHULARICK, MORITZ

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Abstract

This article reassesses the importance of colonial status to investors before 1914 by means of multivariable regression analysis of the data available to contemporaries. We show that British colonies were able to borrow in London at significantly lower rates of interest than noncolonies precisely because of their colonial status, which mattered more than either gold standard adherence or the sustainability of fiscal policies. The empire effect was, on average, a discount of around 100 basis points, rising to around 175 basis points for the underdeveloped African and Asian colonies. Colonial status significantly reduced the default risk perceived by investors.

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Article provided by Cambridge University Press in its journal The Journal of Economic History.

Volume (Year): 66 (2006)
Issue (Month): 02 (June)
Pages: 283-312
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Handle: RePEc:cup:jechis:v:66:y:2006:i:02:p:283-312_00

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Michael D. Bordo & Anna J. Schwartz, 1997. "Monetary Policy Regimes and Economic Performance: The Historical Record," NBER Working Papers 6201, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1986. "The Pure Theory of Country Risk," NBER Working Papers 1894, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    • Eaton, Jonathan & Gersovitz, Mark & Stiglitz, Joseph E., 1986. "The pure theory of country risk," European Economic Review, Elsevier, vol. 30(3), pages 481-513, June. [Downloadable!] (restricted)
    • Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Christopher M. Meissner, 2002. "A New World Order: Explaining the Emergence of the Classical Gold Standard," NBER Working Papers 9233, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106 National Bureau of Economic Research, Inc. [Downloadable!]
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    • Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and the World Economy, pages 225-236 National Bureau of Economic Research, Inc. [Downloadable!]
  5. Michael A. Clemens & Jeffrey G. Williamson, 2004. "Wealth bias in the first global capital market boom, 1870-1913," Economic Journal, Royal Economic Society, vol. 114(495), pages 304-337, 04. [Downloadable!] (restricted)
  6. Ashoka Mody & Mark P. Taylor, 2002. "International Capital Crunches: The Time-Varying Role of Informational Asymmetries," IMF Working Papers 02/43, International Monetary Fund.
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  7. Eichengreen, Barry & Flandreau, Marc, 1994. "The Geography of the Gold Standard," CEPR Discussion Papers 1050, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Oaxaca, Ronald L. & Geisler, Iris, 2003. "Fixed effects models with time invariant variables: a theoretical note," Economics Letters, Elsevier, vol. 80(3), pages 373-377, September. [Downloadable!] (restricted)
  9. Michael A. Clemens & Jeffrey G. Williamson, 2000. "Where did British Foreign Capital Go? Fundamentals, Failures and the Lucas Paradox: 1870-1913," NBER Working Papers 8028, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Joshua Aizenman, 1990. "Investment, Openness, and Country Risk," NBER Working Papers 2410, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kris James Mitchener & Marc D. Weidenmier, 2005. "Supersanctions and Sovereign Debt Repayment," NBER Working Papers 11472, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Moritz Schularick, 2006. "A tale of two 'globalizations': capital flows from rich to poor in two eras of global finance," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 11(4), pages 339-354. [Downloadable!]
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  3. Accominotti, Olivier & Flandreau, Marc & Rezzik, Riad & Zumer, Frédéric, 2008. "Black Man’s Burden: Measured Philanthropy in the British Empire, 1880-1913," CEPR Discussion Papers 6811, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Michael D. Bordo & Christopher M. Meissner, 2007. "Foreign Capital and Economic Growth in the First Era of Globalization," NBER Working Papers 13577, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Alan Martina, 2007. "A Class of Poverty Traps: A Theory and Empirical Tests," ANUCBE School of Economics Working Papers 2007-482, Australian National University, College of Business and Economics, School of Economics. [Downloadable!]
  6. André Faria & Martín Minnoni & Aleksandar Zaklan & Paolo Mauro, 2006. "The External Financing of Emerging Market Countries: Evidence from Two Waves of Financial Globalization," IMF Working Papers 06/205, International Monetary Fund. [Downloadable!]
  7. Guillaume Daudin & Matthias Morys & Kevin H. O’Rourke, 2008. "Europe and Globalization, 1870-1914," Documents de Travail de l'OFCE 2008-17, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
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