Political Instability, Institutions and Private Capital Markets in Lima, Peru

This article analyzes the evolution of the private credit market of Lima between 1835 and 1865. In particular, it explores the effects of political instability and institutional change on the allocation of medium-term and long-term credit. By relying on a sample of more than 1,200 notarized records, the article shows that institutions had an important effect on the cost of credit. Political instability and institutional uncertainties led to high interest rates. As Peru became more stable after the mid-1840s and the risk of lending declined, interest rates declined.