Working Paper: CEPR ID: DP273
Authors: Barry Eichengreen; Richard Portes
Abstract: This paper revises and extends our previous (1986) analysis of rates of return on sterling and dollar foreign loans of the 1920s. It analyzes a larger sample of 250 dollar bonds and 125 sterling issues, covering the years 1920-9. Internal rates of return are adjusted for repurchases of discounted foreign bonds. The larger sample confirms the main conclusions of our original study and enables us to paint a richer picture of interwar experience with foreign loans. We also analyze determinants of ex ante spreads on foreign loans relative to risk-free returns, and assess the sophistication of investors.
Keywords: international debt; sovereign borrowing; default
JEL Codes: 040; 433; 441
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| performance of dollar loans to foreign governments (F34) | performance of loans to foreign corporations (F34) |
| British investors performed better than American counterparts (P17) | superior negotiation mechanisms and government intervention (D47) |
| lower incidence of default on sterling bonds (F34) | higher average returns observed for sterling bonds (G12) |