Political Institutions and Sovereign Borrowing: Evidence from Nineteenth-Century Argentina

35 Pages Posted: 17 Jul 2009 Last revised: 13 Nov 2009

See all articles by Sebastian M. Saiegh

Sebastian M. Saiegh

University of California, San Diego (UCSD) - Department of Political Science

Date Written: November 12, 2009

Abstract

I analyze the relationship between political institutions and sovereign borrowing in a simple model where institutions are endogenous and governments vary in their credit risk and political goals. The model formalizes the main intuition in North and Weingast (1989) and also reconciles seemingly contradictory claims in the existing literature. My main result suggests that one has to consider both the direction and the magnitude of the institutional effects on a country's credit risk to establish that greater institutional constraints lead to better borrowing terms. I evaluate the model’s central implications using data on the risk premia of Argentine bonds between 1822 and 1913. My analysis reveals that one cannot reject the existence of a unit root in the series' autoregressive representation. In particular, the existence of a single and distinct break point in 1859 indicates that the adoption of constitutional constraints had a permanent effect on the country's borrowing costs.

Keywords: Sovereign Debt, Political Institutions, Risk Premia, Argentina

JEL Classification: O43, H11, N46, N16, O54

Suggested Citation

Saiegh, Sebastian M., Political Institutions and Sovereign Borrowing: Evidence from Nineteenth-Century Argentina (November 12, 2009). CELS 2009 4th Annual Conference on Empirical Legal Studies Paper, Available at SSRN: https://ssrn.com/abstract=1434534 or http://dx.doi.org/10.2139/ssrn.1434534

Sebastian M. Saiegh (Contact Author)

University of California, San Diego (UCSD) - Department of Political Science ( email )

9500 Gilman Drive
Code 0521
La Jolla, CA 92093-0521
United States

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