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SUMMARY:Democracy\, Autocracy and Sovereign Debt: How Polity Influenced Co
 untry Risk in the First Financial Globalisation - Leonardo Weller (Escola 
 de Economia de São Paulo da Fundação Getulio Varga) and Coşkun Tuncer 
 (University College London)
DTSTART:20210504T160000Z
DTEND:20210504T173000Z
UID:TALK158740@talks.cam.ac.uk
CONTACT:Gareth Austin
DESCRIPTION:This article tests the hypothesis that democratic regimes prod
 uce better borrowers because of the effectiveness of the legislative to li
 mit the power of the executive to credibly commit to its contracts. We tes
 t this democratic advantage hypothesis during the first financial globalis
 ation\, from circa 1880 to 1914\, for 27 independent peripheral (capital-i
 mporting) countries that borrowed in London. We regress the sovereign risk
  premium on indicators of political regime type derived from The Statesmen
 ’s Yearbook\, a contemporary publication\, and the Polity IV project. We
  control for variables that capture political stability and economic condi
 tions. The results show that democracies were penalised with a higher risk
  premium. Moreover\, political stability decreased the cost of borrowing. 
 Yet interactions between these variables suggest that creditors marginally
  preferred democracies in peaceful countries. Moreover\, international fin
 ancial controls and the association with Rothschilds reduced the sovereign
  risk premium only in autocratic regimes. We deal with endogeneity by lagg
 ing years of domestic political stability in three decades and by using it
  as an instrument of current years of domestic political stability. At odd
 s with the mainstream literature\, we conclude that autocracies performed 
 better than democracies in the world financial markets before 1914 because
  they promoted political stability.
LOCATION:Faculty of History\, Cambridge: Zoom (to receive link please regi
 ster at https://www.hist.cam.ac.uk/event-series/global-economic-history
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