Scientific Abstract

This project studies the domestic public debt of peripheral nations (or emerging economies) from the 1880s to 1945. 

Domestic debt is an understudied topic in the history of public finance, which mostly focuses on external debt. The period 1880-1913 is known as the First Financial Globalization (FFG) because capital flew from rich economies to the rest of the world at unprecedented levels. For the first time in history, nations outside Europe were able to tap a global capital market to fund their state-building and infrastructure investment projects. Within this context, historians have largely ignored that several governments also borrowed domestically, and some as much as they did abroad. By contrast, the Interwar saw a period of deglobalization during which access to foreign finance became more restricted. Accordingly, many governments started to look for credit at home. The same oversight characterized the research about our own Second Globalization until the late 1990s when a series of debt crises in emerging economies (East Asia, Brazil and Russia) alerted to the dangers of debt in foreign currencies and to the need to develop local currency bond markets.

The project will address two main questions. First, why did some countries borrow more at home than others? The second asks what the relation between domestic and external debt was. This we will address from the viewpoint of governments issuing the two types of bonds and from the perspective of the investors buying them. 

To answer these questions, we will use methods for statistical inference (panel regressions) and for pricing government bonds and characterizing their risk-return profile. Our main source will be the world’s largest collection of historical asset prices, housed in Geneva. We will also gather data from archives and libraries in Europe and Latin America in both physical and electronic formats. 

A major contribution of this project will be the creation of the first (open access) database of domestic debt issued by 27 emerging countries spread between Latin America, Europe and Asia. We will build the database at the bond level and gather information on market prices, outstanding amounts, and other bond characteristics such as collateral and legal guarantees. With the new data, we aim to publish a minimum of three research articles: one documenting the methodological challenges of constructing a historical cross-country dataset; a second explaining the rise of domestic debt and why it was more important in some countries or periods than others; and a third article focused on asset pricing, comparing domestic and external debt in terms of their cost and performance over time. 

We will also organize an international workshop in Geneva and a winter school in São Paulo. The project will be based at the São Paulo School of Economics (FGV/EESP) and the Geneva Graduate Institute. It is a joint research collaboration between the Co-PIs, Leonardo Weller (FGV) and Rui Esteves (Geneva Graduate Institute), and the partner Coskun Tunçer (UCL), all of whom are recognized financial historians. The project builds upon their previous joint work on the architecture of international capital flows and the history of sovereign debt. Their synergies will also be valuable for a comparative project such as this one, namely, their specialized historical knowledge of large regions (Latin America, Europe, and the Middle East).The outputs of the project will be relevant to economic historians and policy institutions interested in understanding the conditions for developing local currency debt markets. It will strengthen the research links between Switzerland and Brazil, reach out to policy institutions, and provide training for doctoral students.

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