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Political institutions and sovereign borrowing: evidence from nineteenth-century Argentina

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  • Sebastián Saiegh

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Abstract

I study the relationship between political institutions and sovereign borrowing when constitutional constraints are systematically chosen to obtain better credit conditions. I argue that the impact of institutional constraints on country risk premia depends on the government’s concern with the country’s creditworthiness and its “willingness to repay”; two variables that are hardly observable. To properly evaluate the relationship between political institutions and sovereign borrowing, I focus on the link between institutional constraints and the risk premia of Argentine bonds between 1822 and 1913. Specifically, I analyze whether a “structural break” in the government’s cost of borrowing time-series exists. I use the Perron-Volesang test for structural change with unknown break dates. The statistical analysis indicates that the adoption of institutional constraints led to significant improvements in borrowing terms: the series has a single structural change; and the distinctive break point is associated with the country’s adoption of constitutional checks and balances. Time-series regressions and instrumental variables (IV) estimation reinforce these findings. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Sebastián Saiegh, 2013. "Political institutions and sovereign borrowing: evidence from nineteenth-century Argentina," Public Choice, Springer, vol. 156(1), pages 61-75, July.
  • Handle: RePEc:kap:pubcho:v:156:y:2013:i:1:p:61-75
    DOI: 10.1007/s11127-012-0003-4
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    References listed on IDEAS

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    1. Fishlow, Albert, 1985. "Lessons from the past: capital markets during the 19th century and the interwar period," International Organization, Cambridge University Press, vol. 39(03), pages 383-439, June.
    2. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077 Elsevier.
    3. A. G. Ford, 1956. "Argentina And The Baring Crisis Of 1890," Oxford Economic Papers, Oxford University Press, vol. 8(2), pages 127-160.
    4. Mitchener, Kris James & Weidenmier, Marc D., 2008. "The Baring Crisis and the Great Latin American Meltdown of the 1890s," The Journal of Economic History, Cambridge University Press, vol. 68(02), pages 462-500, June.
    5. Kris James Mitchener & Marc D. Weidenmier, 2007. "The Baring Crisis and the Great Latin American Meltdown of the 1890s," NBER Working Papers 13403, National Bureau of Economic Research, Inc.
    6. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-320, July.
    7. Flandreau, Marc & Flores, Juan H., 2009. "Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830," The Journal of Economic History, Cambridge University Press, vol. 69(03), pages 646-684, September.
    8. Paolera, Gerardo della & Taylor, Alan M., 2001. "Straining at the Anchor," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226645568.
    9. Clemente, Jesus & Montanes, Antonio & Reyes, Marcelo, 1998. "Testing for a unit root in variables with a double change in the mean," Economics Letters, Elsevier, vol. 59(2), pages 175-182, May.
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    1. repec:spr:laecrv:v:27:y:2018:i:1:d:10.1007_s40503-017-0046-5 is not listed on IDEAS

    More about this item

    Keywords

    Sovereign borrowing; Institutional constraints; Argentina; O43; H11; N46; N16; O54;

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • N46 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Latin America; Caribbean
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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