The purpose of this paper is to analyze the effect of political instability on rural credit in Lima between 1835 and 1865. In particular, it explores the effects of wars on interest rates for the agricultural sector.
The paper relies on primary sources for the study of the early credit market of Lima. In particular, the study relies on a sample of more than 800 notarized loans for 1835–1865, collected from the National Archives of Peru, to determine the effect of wars on the cost of credit.
The evidence shows that wars increased interest rates on rural loans and that the impact of wars on the cost of credit was greater when the State lacked fiscal resources. Political instability made funding more costly for landlords and farmers, especially in the late 1830s and early 1840s.
This paper is one of the few historical studies on the role of wars on rural credit in Latin America. It contributes to our understanding of the linkages between political instability and financial development.
