Military conquest and sovereign debt: Chile, Peru and the London bond market, 1876–1890

Richard Sicotte (), Catalina Vizcarra and Kirsten Wandschneider
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Richard Sicotte: University of Vermont, Burlington, VT, USA
Catalina Vizcarra: University of Vermont, Burlington, VT, USA

Cliometrica, Journal of Historical Economics and Econometric History, 2010, vol. 4, issue 3, 293-319

Abstract: As a result of the War of the Pacific (1879–1883), Chile conquered Peruvian and Bolivian territories rich in nitrates and guano. We conduct econometric tests for structural breaks in the time series of the government bonds for Chile and Peru between 1876 and 1890 in order to examine the effects of the changes in resource endowments on the investors’ perceptions of the risk premia of Chilean and Peruvian securities. Our results reveal that investors were extremely pessimistic about the prospects of Chilean, and especially Peruvian debt prior to the war. Early Chilean victories that anticipated the transfer of the richly endowed provinces to Chile caused significant increases in the price of Chilean securities. But such was the low regard with which investors viewed the Peruvian government that the fall of Lima caused an increase in the price of Peruvian bonds on the hope that Chile would assume some of the responsibility for them. Endowments, reputations, and the countries’ financial conditions figure prominently as the driving forces behind the investors’ behavior.

Keywords: Sovereign debt; Natural resources; Nitrates; War of the Pacific (search for similar items in EconPapers)
JEL-codes: F21 F34 N26 O13 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:afc:cliome:v:4:y:2010:i:3:p:293-319

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