Institutions, reforms, and country risk: Lessons from Japanese government debt in the Meiji era

Nathan Sussman*, Yishay Yafeh

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

72 Scopus citations


We investigate the effect of the establishment of modern institutions on the risk premium associated with Japanese government bonds traded in London between 1870 and 1714. While most institutional innovations failed to elicit an immediate market response, the adoption of the gold standard did significantly reduce the perceived risk associated with Japanese bonds. In addition, some geopolitical events, especially the military victory over Russia, improved Japan's debt capacity. We concluded that well-understood monetary rules and military achievements matter more for foreign investors' perception of a country than do modern state institutions, at least in the short run.

Original languageAmerican English
Pages (from-to)442-467
Number of pages26
JournalJournal of Economic History
Issue number2
StatePublished - 2000

Bibliographical note

Funding Information:
We thank Ariel Frischoff for assistance in collecting the data and the Falk Institute for Economic Research in Israel for financial support. Part of this study was conducted while Yafeh was visiting the University of Tokyo whose hospitality is gratefully acknowledged. We are also grateful to Shigeki Miyajima of the Historical Research Division of the Bank of Japan, to the Editor and two anonymous referees. Dan Ben-David, Charles Calomiris, Marc Flandreau, Oded Galor, Avner Greif, Ehud Harari, Eugene KandeL, Yona Rubinstein, Ben-Ami Shillony, Shlomo Yitzhaki, and seminar participants at the University ofMichigan, the Stockholm School ofEconomics, Ben Gurion University oftheNegev, UC Berkeley, The Hebrew University of Jerusalem, Tel Aviv, Haifa, Kobe, Osaka, Harvard, Yale, Stanford, and Toronto Universities, participants at a CEPR conference held in Milan, the NBER Japan Workshop, and the Economic History Association 1998 meeting provided extremely valuable comments and suggestions.


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