The True Measure of Country Risk

Gerardo della Paolera and Martín Grandes

in The Decline of Latin American Economies

Published by University of Chicago Press

Published in print August 2007 | ISBN: 9780226185002
Published online February 2013 | e-ISBN: 9780226185033 | DOI:
The True Measure of Country Risk

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This chapter looks into the heterogeneous effects that the process of financial integration with the world capital market had on different government bodies in Argentina, covering the period from 1886 until the run-up to the Baring Crisis in 1891. It argues that the nature of emerging capital markets is far more complex than the arbitrage parity conditions in the conventional goods and services markets. The asymmetric havoc wrought by the Baring collapse was reflected by a credit crunch for the provinces and the municipal entities, leading them to a default on their obligations by the end of 1891. Unlike other developed countries at the time, whose financial markets at different levels were well integrated into the world capital markets—meaning their borrowings were regarded as perfect substitutes—Argentina's experience suggests an opposite fate.

Keywords: capital markets; Argentina; Baring Crisis; arbitrage parity; credit crunch; financial markets

Chapter.  6527 words.  Illustrated.

Subjects: International Economics

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