The Journal of Economic History


The Empire Effect: The Determinants of Country Risk in the First Age of Globalization, 1880–1913

a1 Laurence A. Tisch Professor of History, Harvard University, Minda de Gunzburg Center for European Studies, 27 Kirkland St., Cambridge MA 02138. E-mail:
a2 Senior Economist at Amiya Capital, London; and Visiting Lecturer, Free University Berlin; John-F.-Kennedy-Institute, Lansstr.7, 14195 Berlin, Germany. E-mail:


This article reassesses the importance of colonial status to investors before 1914 by means of multivariable regression analysis of the data available to contemporaries. We show that British colonies were able to borrow in London at significantly lower rates of interest than noncolonies precisely because of their colonial status, which mattered more than either gold standard adherence or the sustainability of fiscal policies. The “empire effect” was, on average, a discount of around 100 basis points, rising to around 175 basis points for the underdeveloped African and Asian colonies. Colonial status significantly reduced the default risk perceived by investors.