The Ascent of Money: A Financial History of the World

by Niall Ferguson

Significantly, a much higher proportion of pre-1914 capital export went to relatively poor countries than has been the case more recently. In 1913, 25 per cent of the world’s stock of foreign capital was invested in countries with per capita incomes of a fifth or less of US per capita GDP; in 1997 the proportion was just 5 per cent.24 It may be that British investors were attracted to foreign markets simply by the prospect of higher returns in capital-poor regions.25 It may be that they were encouraged by the spread of the gold standard, or by the increasing fiscal responsibility of foreign governments. Yet it is hard to believe there would have been so much overseas investment before 1914 had it not been for the rise of British imperial power.

What we would now call emerging market spreads narrowed dramatically, despite major episodes of debt default in the 1870s and 1890s. With the exception of securities issued by improvident Greece and Nicaragua, none of the sovereign or colonial bonds that were traded in London in 1913 yielded more than two percentage points above consols, and most paid considerably less.