Skip to main content

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


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.

Hide All

Primary Data Sources

Brachelli H. F. von. 1887 Statistische Skizzen der europäischen und amerikanischen Staaten nebst den auswärtigen Beziehungen der ersteren. Leipzig: Hinrichs'sche Buchhandlung,
Corporation of Foreign Bondholders. 1880–1914 Annual General Report of the Council of the Corporation of Foreign Bondholders. London: Council of the Corporation,
Fenn C. 1893 Fenn's Compendium. London: E. Wilson,
Fenn C., and R. L. Nash. 1883 Fenn's Compendium. London: Effingham Wilson,
1880–1914 The Investor's Monthly Manual: A Newspaper for Investors. London: Investors Monthly Manual Office:
Juraschek F. von. 1880–1914 Otto Hübner's Geographisch-Statistische Tabellen aller Länder der Erde. Frankfurt: Heinrich Keller,
London Stock Exchange. 1900–1913 The Stock Exchange Weekly Official Intelligence: An Official Financial Gazette of Information Concerning All Classes of Securities. London:
Nash R. L. 1889 Fenn's Compendium. London: Effingham Wilson,
van Oss S. F.. 1898 Fenn on the Funds. London: Effingham,
Philip George. 1914 Philip's Mercantile Marine Atlas. London: Geographical Institute,
Royal Statistical Office. Statistical Abstract for the Several Colonial and Other Possessions of the United Kingdom (Statistical Abstract for the British Empire). London: 1880f.
Royal Statistical Office. Statistical Abstracts for the Principal and Other Foreign Countries. London: 1880f.
1880–1916 The Statesman's Yearbook: The Politics, Cultures and Economies of the World/Statistical and Historical Annual of the States of the World. London: Macmillan/Basingstoke/Palgrave,
The full data appendix is available from Niall Ferguson's webpage at Harvard:

Secondary Sources

Atkin John. 1977 British Overseas Investment 19181931. New York: Arno Press,
Atkin John. 1970Official Regulation of British Overseas Investment, 1914–1931.” Economic History Review 23, no. 2 32435.
Avramov Roumen. 1999 120 Years Bulgarian National Bank (1879–1999). Sofia: Bulgarian National Bank,
Banks Arthur. Cross-National Time Series Database 1815–1973.
Beck Nathaniel, and Jonathan Katz. 1995Nuisance vs. Substance: Specifying and Estimating Time-Series Cross-Section Models.” Political Analysis 6 136.
Beck Nathaniel, and Jonathan Katz. 1995What To Do (and Not To Do) with Time-series Cross-section Data.” American Political Science Review 89, no. 3 63447.
Bordo Michael, and Finn. E. Kydland. 1995The Gold Standard as a Rule: An Essay in Exploration.” Explorations in Economic History 32, no. 4 42364.
Bordo Michael, and Finn. E. Kydland. 1996The Gold Standard as a Commitment Mechanism.” In Modern Perspectives on the Gold Standard, edited by Tamim Bayoumi, Barry Eichengreen, and Mark P. Taylor, 55100. Cambridge: Cambridge University Press,
Bordo Michael, Christopher M. Meissner, and Angela Redish. July 2003How ‘Original Sin’ was Overcome.” NBER Working Paper No. 9841, Cambridge, MA,
Bordo Michael, and Hugh Rockoff. 1996The Gold Standard as a ‘Good Housekeeping Seal of Approval’.” This Journal 56, no. 2 389428.
Bordo Michael, and Anna Schwartz. June 1997Monetary Policy Regimes and Economic Performance: The Historical Record.” NBER Working Paper No. 6201, Cambridge, MA,
Cain P. J., and A. G. Hopkins. 1994 British Imperialism. London: Longman,
Cantor R., and F. Packer. October 1996Determinants and Impacts of Sovereign Credit Ratings.” Federal Reserve Bank of New York Economic Policy Review, 3753.
Clemens Michael A., and Jeffrey Williamson. 2004Wealth Bias in the First Global Capital Market Boom, 1870–1913.” Economic Journal 114, no. 2 30437.
Cline W. R., and K. J. Barnes. 1997Spreads and Risk in Emerging Markets Lending.” Institute of International Finance Research Papers No.97/1, Institute of International Finance, Washington, DC,
Couper Alistair, ed. 1983 The Times Atlas of the Oceans. London: Times Books,
Davis Lance, and Robert A. Huttenback. 1986 Mammon and the Pursuit of Empire. The Political Economy of British Imperialism. Cambridge: Cambridge University Press,
Denzel Markus. 1997Finanzplätze, Wechselkurse und Währungsverhältnisse in Lateinamerika (1808–1914).” In Währungen der Welt. Vol.7, edited by Jürgen Schneider, 1106. Stuttgart: Steiner,
Drazen Allan. 1998Towards a Political-Economic Theory of Domestic Debt.” In The Debt Burden and Its Consequences for Monetary Policy, edited by G. Calvo and M. King, 159176, London: Palgrave Macmillan,
Eaton Jonathan, Mark Gersovitz, and Joseph Stiglitz. December 1986The Pure Theory of Country Risk.” NBER Working Paper No. 1894, Cambridge, MA,
Edelstein Michael. 1994Imperialism: Cost and Benefit.” In The Economic History of Britain Vol. 2, edited by Roderick Floud and Donald McCloskey, 197216. Cambridge: Cambridge University Press,
Edelstein Michael. 1982 Overseas Investment in the Age of High Imperialism. New York: Columbia University Press,
Eichengreen Barry, and Ashoka Mody. February 1998What Explains Changing Spreads on Emerging Market Debt: Fundamentals or Market Sentiment?” NBER Working Paper No. 6408, Cambridge, MA,
Eichengreen Barry, and Marc Flandreau. 1994The Geography of the Gold Standard.” Centre for Economic Policy Research Discussion Paper in International Macroeconomics No. 1050, London,
Ferguson Niall. 2001 The Cash Nexus. London: Penguin Press,
Ferguson Niall. 2003 Empire: How Britain Made the Modern World. London: Allen Lane,
Ferguson Niall. 1998 The World's Banker: The History of the House of Rothschild. London: Weidenfeld and Nicolson,
Ferguson Niall. 2004The City of London and British Imperialism: New Light on an Old Question.” In London and Paris as International Financial Centres in the Twentieth Century, edited by Yousef Cassis and Eric Bussiére, 5777. Oxford: Oxford University Press,
Ferguson Niall. “Political Risk and the International Bond Market between the 1848 Revolution and the Outbreak of the First World War.” Economic History Review forthcoming.
Ferguson Niall, and Richard Batley. 2001Event Risk and the International Bond Market in the Era of the Classical Gold Standard.” Unpublished Manuscript, Oxford University, Oxford,
Fieldhouse David K. 1999 The West and the Third World. Oxford: Blackwell,
Fieldhouse David K. 1973 Economics and Empire 1830–1914. London: Weidenfeld & Nicolson,
Fishlow Albert. 1985Lessons From the Past: Capital Markets during the 19th Century and the Interwar period.” International Organization 39 383439.
Flandreau Marc, and Nathan Sussman. February 2004Old Sins: Exchange Rate Clauses and European Foreign Lending in the Nineteenth Century.” Centre for Economic Policy Research Discussion Paper 4248.
Flandreau Marc, and Frédéric Zumer. 2004 The Making of Global Finance. 18801913. Paris: OECD,
Flandreau Marc, Jacques Le Cacheux, and Frédéric Zumer. 1998Stability without a Pact? Lessons from the European Gold Standard, 1880–1914.” Economic Policy 13, no. 26 11562.
Hale David. 28 January 2003The British Empire In Default: Should Newfoundland Be a Role Model For Argentina?” Mimeo,
Hausmann J. A., and W. E. Taylor. 1981Panel Data and Unobserved Individual Effects.” Econometrica 49 31939.
Hermalin Benjamin E., and January 1999 Andrew K. Rose. “Risks to Lenders and Borrowers In International Capital Markets.” NBER Working Paper No. 6886, Cambridge, MA,
Kamin Steven B., and Karsten von Kleist. 1999The Evolution and Determinants of Emerging Market Credit Spreads in the 1990's.” International Finance Discussion Papers No. 653, Board of Governors of the Federal Reserve System, Washington, DC,
Kelly Trish. 1998Ability and Willingness to Pay in the Age of the Pax Britannica 1890–1914.” Explorations in Economic History 35, no. 1 3158.
Kennedy Peter. 2003 A Guide to Econometrics. Oxford: Blackwell,
Keynes John Maynard. 1981Foreign Investment and National Advantage.” In The Collected Writings of John Maynard Keynes, Vol. 19, edited by Donald Moggridge, 27584. London: Macmillan,
Keynes John Maynard. 1981Advice to Trustee Investors.” In The Collected Writings of John Maynard Keynes. Vol. 19. edited by Donald Moggridge, 20206. London: Macmillan,
Krasner Stephen. 1999 Sovereignty: Organized Hypocrisy. Princeton, NJ: Princeton University Press,
La Porta Rafael, Florence Lopez-de-Silanes, Andrei Shleifer, et al. 1998Law and Finance.” Journal of Political Economy 106, no. 6 111355.
Levy Maria Barbara. 1995The Brazilian Public Debt—Domestic and Foreign, 1824–1913.” In The Public Debt in Latin America in Historical Perspective, edited by Reinhart Liehr, 20954. Frankfurt: Vervuert,
Lindert Peter H., and Peter Morton. 1989How Sovereign Debt Has Worked.” In Developing Country Debt and the World Economy, edited by J. Sachs, 22535. Chicago: University of Chicago Press,
Macdonald James. 2003 A Free Nation Deep in Debt. New York: Farrar, Straus and Giroux,
Maddison Angus. 2001 The World Economy: A Millennial Perspective. Paris: OECD,
Meissner Christopher M.A New World Order: Explaining the Emergence of the Classical Gold Standard.” Journal of International Economics forthcoming.
Mitchell B. R. 1995 International Historical Statistics: Africa, Asia & Oceania. New York: Stockton Press,
Mitchell B. R.. 1993 International Historical Statistics: The Americas 1750–1988. New York: Stockton Press,
Mitchell B. R.. 1992 International Historical Statistics: Europe 1750–1988. New York: Stockton Press,
Mitchener Kris James, and Marc Weidenmier. 2005Empire, Public Goods, and the Roosevelt Corollary.” This JOURNAL 65, no. 3 65892.
Mitchener Kris James, and Marc Weidenmier. March 2005Trade and Empire.” Working Paper, Claremont McKenna College,
Mody Ashoka, and Mark P. Taylor. 2002International Capital Crunches: The Time-Varying Role of Information Asymmetries.” International Monetary Fund Working Paper 02/43, Washington, DC,
Oaxaca Ronald, and Iris Geisler. 2003Fixed Effect Models with Time Invariant Variables: A Theoretical Note.” Economic Letters 80, no. 3 37377.
Obstfeld Maurice, and Alan M. Taylor. 2003Sovereign Risk, Credibility and the Gold Standard: 1870–1913 vs. 1925–1931.” Economic Journal 113, no. 2 24175.
Obstfeld Maurice, and Alan M. Taylor. 2003Globalization and Capital Markets.” In Globalization in Historical Perspective, edited by Michael D. Bordo, Alan M. Taylor, and Jeffrey G. Williamson, 12187. Chicago: Chicago University Press,
Rostowski Jacek, and Bogdan Stacescu. April 2004The Wig and the Pith Helmet: The Impact of ‘Legal School’ versus Colonial Institutions on Economic Performance.” Draft paper,
Sarkees Meredith Reid. 2000The Correlates of War Data on War: An Update to 1995.” Conflict Management and Peace Science 18 12344.
Schneider Jürgen, et al., eds. 1991–1997 Währungen der Welt, Vol. 1–8: Beiträge zur Wirtschafts- und Sozialgeschichte No. 44–57. Stuttgart: Steiner,
Schularick Moritz. “A Tale of Two ‘Globalizations’: Capital Flows From Rich to Poor in Two Eras of Global Finance.” International Journal of Finance and Economics, forthcoming.
Schularick Moritz, and Thomas Steger. “Does International Financial Integration Spur Economic Growth? New Evidence from the First Era of Financial Globalization.” ETH Zurich Working Paper 06/46.
Sédillot René. 1955 Toutes les monnaies du monde. Paris: Sirey,
Siller Javier Pérez. 1995Deuda y consolidacion del poder en México, 1867–1896.” In The Public Debt in Latin America in Historical Perspective, edited by Reinhart Liehr, 293336. Frankfurt: Vervuert,
Stone Irving. 1999 The Global Export of Capital from Great Britain 1865–1914. London: Macmillan,
Taylor Mark P., and Lucio Sarno. 1997Capital Flows to Developing Countries: Long- and Short-Term Determinants.” World Bank Economic Review 11 45170.
Wooldridge Jeffrey M. 2002 Econometric Analysis of Cross-Section and Panel Data. Cambridge, MA: MIT Press,
World Bank. 2004 World Development Report 2005: A Better Investment Climate for Everyone. Washington, DC: World Bank,
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

The Journal of Economic History
  • ISSN: 0022-0507
  • EISSN: 1471-6372
  • URL: /core/journals/journal-of-economic-history
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Full text views

Total number of HTML views: 28
Total number of PDF views: 204 *
Loading metrics...

Abstract views

Total abstract views: 1022 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 25th June 2018. This data will be updated every 24 hours.