Empire Effect 289 economic thinking about default risk centered on debt sustainability and the soundness of public finances. A third determinant of risk premia may simply have been political events.According to Ferguson,revolutions,governmental crises and wars were regarded by nineteenth-century investors as increasing the likelihood of defaults by the countries affected.25 Finally,Clemens and Williamson have identified demographic characteristics,natural re- source endowment,and education as significant determinants of yield spreads.26 To determine whether or not membership in the British Empire genu- inely lowered borrowing costs,it is therefore imperative to control for these and other factors.British colonies may simply have been able to borrow at lower rates than other foreign countries because they were on the gold standard,had more sustainable fiscal policies,were less sus- ceptible to political crises,or were simply better situated relative to trade routes and temperate climatic zones. YIELD DATA AND ECONOMIC CONTROL VARIABLES We constructed the largest possible sovereign bond database for the period 1880-1913.Price data for government bonds quoted and traded in the London market were copied by hand from the leading financial publication of the time,the Investor's Monthly Manual.Some addi- tional quotations were taken from the London Stock Exchange Weekly Intelligence,the London Stock Exchange's official weekly gazette.The bonds chosen had to pass three strict criteria to qualify as benchmark is- sues.First,they had to be payable in London in either sterling or gold, enabling us to focus exclusively on country risk and to ignore the cur- rency risk inherent in bonds denominated in other currencies.7 Secondly, 24 Unfortunately,it cannot be excluded that different gold coding is responsible for the in- compatible results.Flandreau and Zumer,Making of Global Finance,used a de facto criterion, i.e.,exchange rate stability over a couple of years,whereas Obstfeld and Taylor,"Sovereign Risk,"looked both at de jure and de facto criteria,following Meissner,"New World Order." 25 See Ferguson,Cash Nexus and"Political Risk." 26 Clemens and Williamson,"Wealth Bias,"table 7,p.322.The authors see colonial status as toreminate Fne d mym opea m mies that issued debt in domestic currency only.The(in)ability of countries to borrow interna- tionally in domestic currency has been explored in detail in the "original sin"literature;see Bordo,Meissner,and Redish,"Original Sin";and Flandreau and Sussman,"Old Sins."For the United States we followed Bordo and Rockoff,"Gold Standard,"by using gold equivalent yields instead of dollar yields.The terms of repayment of U.S.government debt were in doubt: after 1879,all government debt was to be payable in coin-technically silver or gold,but in practice gold.It was not until 1910 that gold was legally declared the only medium of repay- ment in the United StatesEmpire Effect 289 economic thinking about default risk centered on debt sustainability and the soundness of public finances.24 A third determinant of risk premia may simply have been political events. According to Ferguson, revolutions, governmental crises and wars were regarded by nineteenth-century investors as increasing the likelihood of defaults by the countries affected.25 Finally, Clemens and Williamson have identified demographic characteristics, natural re￾source endowment, and education as significant determinants of yield spreads.26 To determine whether or not membership in the British Empire genu￾inely lowered borrowing costs, it is therefore imperative to control for these and other factors. British colonies may simply have been able to borrow at lower rates than other foreign countries because they were on the gold standard, had more sustainable fiscal policies, were less sus￾ceptible to political crises, or were simply better situated relative to trade routes and temperate climatic zones. YIELD DATA AND ECONOMIC CONTROL VARIABLES We constructed the largest possible sovereign bond database for the period 1880–1913. Price data for government bonds quoted and traded in the London market were copied by hand from the leading financial publication of the time, the Investor’s Monthly Manual. Some addi￾tional quotations were taken from the London Stock Exchange Weekly Intelligence, the London Stock Exchange’s official weekly gazette. The bonds chosen had to pass three strict criteria to qualify as benchmark is￾sues. First, they had to be payable in London in either sterling or gold, enabling us to focus exclusively on country risk and to ignore the cur￾rency risk inherent in bonds denominated in other currencies.27 Secondly, 24 Unfortunately, it cannot be excluded that different gold coding is responsible for the in￾compatible results. Flandreau and Zumer, Making of Global Finance, used a de facto criterion, i.e., exchange rate stability over a couple of years, whereas Obstfeld and Taylor, “Sovereign Risk,” looked both at de jure and de facto criteria, following Meissner, “New World Order.” 25 See Ferguson, Cash Nexus and “Political Risk.” 26 Clemens and Williamson, “Wealth Bias,” table 7, p. 322. The authors see colonial status as significant but less important than these nonpolitical variables. Ibid., p. 319, regressions 6 to 8. 27 This forced us to eliminate France and Germany as well as some smaller European econo￾mies that issued debt in domestic currency only. The (in)ability of countries to borrow interna￾tionally in domestic currency has been explored in detail in the “original sin” literature; see Bordo, Meissner, and Redish, “Original Sin”; and Flandreau and Sussman, “Old Sins.” For the United States we followed Bordo and Rockoff, “Gold Standard,” by using gold equivalent yields instead of dollar yields. The terms of repayment of U.S. government debt were in doubt: after 1879, all government debt was to be payable in coin—technically silver or gold, but in practice gold. It was not until 1910 that gold was legally declared the only medium of repay￾ment in the United States