Emerging Markets and Financial Globalization: Sovereign Bond Spreads in 1870-1913 and Today

The frequency and virulence of recent financial crises have led to calls for reform of the current international financial architecture. In an effort to learn more about today's international financial environment, the authors turn to an earlier era of financial globalization between 1870 and 1913. By examining data on sovereign bonds issued by borrowing developing countries in this earlier period and in the present day, the authors are able to identify the characteristics of successful borrowers in the two periods. They are then able to show that global crises or contagion are a feature of the 1990s which was hardly known in the previous era of globalization. Finally, the authors draw lessons for today from archival data on mechanisms used by British investors in the 19th century to address sovereign defaults. Using new qualitative and quantitative data, the authors skillfully apply a variety of approaches in order to better understand how problems of volatility and debt crises are dealt with in international financial markets.