284 Ferguson and Schularick rowing costs of the governments of poorer countries regardless of whether they were colonies or not.An alternative hypothesis that has been advanced is that the sustainability of a country's fiscal policy was the prime determinant of market assessments of creditworthiness.Were institutions and investors in the City of London primarily interested in a country's monetary and fiscal policy,regardless of its degree of politi- cal dependence?Or did colonial status have an additional effect on market confidence? It will be seen at once that these things are not easily disentangled because British rule generally implied both currency stability and bal- anced budgets,among other things.This article therefore seeks to reas- sess the importance of colonial status in the eyes of investors before the First World War by means of multivariable regression analysis.We use a new and substantially larger sample of data than previous scholars have used.At the same time,we give priority to variables that we know were available to and heeded by contemporary investors.We show that even when monetary,fiscal,and trade policies are controlled for,there was still a marked difference between the spreads on colonial bonds and those on the bonds issued by independent countries.The main inference we draw is that the empire effect reflected the confidence of investors that British-governed countries would maintain sound fiscal,monetary, and trade policies.We also suggest that British rule may have reduced the endemic contract enforcement problems associated with cross- border lending.Investing in Calcutta was not so different from investing in Liverpool,because both transactions took place within a common le- gal and political framework that served to protect investors'rights.Sov- ereign states,by contrast(and indeed by definition),could not be held to account under English law.This has important implications in the con- text of the emerging consensus among economists that defective politi- cal and legal institutions are one of the major barriers to large,sus- tained,and productive capital flows from rich to poor countries. BRITISH IMPERIALISM AND FINANCIAL GLOBALIZATION BEFORE 1914 Between 1865 and 1914 more than f4 billion flowed from Britain to the rest of the world,giving the country a historically unprecedented and since unequalled position as a global net creditor-"the world's banker"indeed;or,to be exact,the world's bond market.By 1914 total British assets overseas amounted to somewhere between f3.1 and f4.5 See,for example,World Bank,World Development Report 2005.284 Ferguson and Schularick rowing costs of the governments of poorer countries regardless of whether they were colonies or not. An alternative hypothesis that has been advanced is that the sustainability of a country’s fiscal policy was the prime determinant of market assessments of creditworthiness. Were institutions and investors in the City of London primarily interested in a country’s monetary and fiscal policy, regardless of its degree of politi￾cal dependence? Or did colonial status have an additional effect on market confidence? It will be seen at once that these things are not easily disentangled because British rule generally implied both currency stability and bal￾anced budgets, among other things. This article therefore seeks to reas￾sess the importance of colonial status in the eyes of investors before the First World War by means of multivariable regression analysis. We use a new and substantially larger sample of data than previous scholars have used. At the same time, we give priority to variables that we know were available to and heeded by contemporary investors. We show that even when monetary, fiscal, and trade policies are controlled for, there was still a marked difference between the spreads on colonial bonds and those on the bonds issued by independent countries. The main inference we draw is that the empire effect reflected the confidence of investors that British-governed countries would maintain sound fiscal, monetary, and trade policies. We also suggest that British rule may have reduced the endemic contract enforcement problems associated with cross￾border lending. Investing in Calcutta was not so different from investing in Liverpool, because both transactions took place within a common le￾gal and political framework that served to protect investors’ rights. Sov￾ereign states, by contrast (and indeed by definition), could not be held to account under English law. This has important implications in the con￾text of the emerging consensus among economists that defective politi￾cal and legal institutions are one of the major barriers to large, sus￾tained, and productive capital flows from rich to poor countries.1 BRITISH IMPERIALISM AND FINANCIAL GLOBALIZATION BEFORE 1914 Between 1865 and 1914 more than £4 billion flowed from Britain to the rest of the world, giving the country a historically unprecedented and since unequalled position as a global net creditor—“the world’s banker” indeed; or, to be exact, the world’s bond market. By 1914 total British assets overseas amounted to somewhere between £3.1 and £4.5 1 See, for example, World Bank, World Development Report 2005