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Institutional Reforms, Financial Development and Sovereign Debt: Britain 1690–1790

Published online by Cambridge University Press:  28 November 2006

Nathan Sussman
Affiliation:
Associate Professor, Department of Economics, The Hebrew University, Mount Scopus, Jerusalem 91905, Israel; and Research Fellow, CEPR. E-mail: msussman @mscc.huji.ac.il.
Yishay Yafeh
Affiliation:
Senior Lecturer, School of Business Administration, The Hebrew University, Mount Scopus, Jerusalem 91905, Israel; Research Fellow, CEPR; and Research Fellow, ECGI. E-mail: msyafeh@mscc.huji.ac.il.

Abstract

We revisit the evidence on the relations between institutions, the cost of government debt, and financial development in Britain (1690–1790) and find that interest rates remained high and volatile for four decades after the Glorious Revolution, partly due to wars and instability; British interest rates co-moved with those in Holland; Debt per capita remained lower in Britain than in Holland until around 1780; and Britain did not borrow at lower rates than European countries with more limited protection of property rights. We conclude that, in the short run, institutional reforms are not rewarded by financial markets.

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ARTICLES
Copyright
© 2006 The Economic History Association

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