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

This book provides the first comparative analysis of the determinants of sovereign bond spreads in the first era of financial globalization and bond finance (1870-1913) and today (1994-2002). Drawing on a newly-collected data set on bond yields, macroeconomic variables, and news of various categories for a panel of emerging markets, it is shown that news about wars or episodes of politically-motivated violence are significant and robust determinants of spreads; fiscal variables also play a role. In contrast, news about institutional reforms seldom have a rapid and significant impact. There are also important differences between the two eras: country-specific fundamentals accounted for a greater share of variation in spreads during the pre-WWI period than they do today. Crises shared by more than one country are common now, but were rare in the past. The mechanisms for addressing sovereign defaults in the previous era of globalization are discussed and some lessons for today are drawn.