Pawned States

How foreign lending weakens emerging nations

In the nineteenth century, many developing countries turned to the credit houses of Europe for sovereign loans to balance their books and weather major fiscal shocks such as war. This reliance on external public finance offered emerging nations endless opportunities to overcome barriers to growth, but it also enabled rulers to bypass critical stages in institution building and political development. Pawned States reveals how easy access to foreign lending at early stages of state building has led to chronic fiscal instability and weakened state capacity in the developing world.

Drawing on a wealth of original data to document the rise of cheap overseas credit between 1816 and 1913, Didac Queralt shows how countries in the global periphery obtained these loans by agreeing to “extreme conditionality,” which empowered international investors to take control of local revenue sources in cases of default, and how foreclosure eroded a country’s tax base and caused lasting fiscal disequilibrium. Queralt goes on to combine quantitative analysis of tax performance between 1816 and 2005 with qualitative historical analysis in Latin America, Asia, Africa, and the Middle East, illustrating how overreliance on external capital by local leaders distorts their incentives to expand tax capacity, articulate power-sharing institutions, and strengthen bureaucratic apparatus.

Panoramic in scope, Pawned States sheds needed light on how early and easy access to external finance pushes developing nations into trajectories characterized by fragile fiscal institutions and autocratic politics.

"Winner of the Triennial Best Book Award, International Political Science Society"

"Winner of the Lepgold Prize, Mortara Center at Georgetown University"

"Winner of the Gaddis Smith International Book Prize, Yale University"

"Winner of the Best Book Award, International Collaboration Section of the American Political Science Association"

"Winner of the William H. Riker Book Award, Political Economy Section of the American Political Science Association"

“Pawned States deftly explains how historical access to cheap credit has driven state weakness and a lack of political reform across the developing world. Queralt’s theoretical and empirical tools are state of the art, as is his vast historical database. A remarkable achievement.”—Mark Dincecco, coauthor of From Warfare to Wealth: The Military Origins of Urban Prosperity in Europe

“Queralt proposes a novel and compelling hypothesis linking state building to foreign lending, and buttresses his argument with a new and carefully documented data set. He has a strong command of history and draws on interesting vignettes and archival evidence to make the book an enjoyable read.”—Kris James Mitchener, Santa Clara University

“Pawned States explores how the availability of loans from global capital markets reduces national leaders’ need to respond to fiscal shocks with increased taxation. As such, global finance had pernicious and persistent political consequences for states outside the European periphery. Queralt employs a new, comprehensive data set of sovereign lending to test these claims; he also draws on numerous case studies to illustrate his argument.”—Layna Mosley, author of Global Capital and National Government

“This remarkable book greatly expands our view of the origins of state capacity. Queralt deftly shows how states outside Europe relied on external resources through borrowing paired with the concession of authority to foreigners, leaving a legacy of institutional weakness. This is some of the best work on state formation since Charles Tilly.”—David Stasavage, author of The Decline and Rise of Democracy