Empire, Public Goods, and the Roosevelt Corollary

The Roosevelt Corollary to the Monroe Doctrine marked a turning point in American foreign policy. In 1904, President Roosevelt announced that, not only were European powers not welcome in the Americas, but that the U.S. had the right to intervene in the affairs of Central American and Caribbean countries that were unstable and did not pay their debts. We use this change in U.S. policy to test Kindleberger's hypothesis that a hegemon can provide public goods such as increased financial stability and peace. Using a newly assembled database of weekly sovereign debt prices, we find that the average sovereign debt price for countries under the U.S. 'sphere of influence' rose by 74% in the year following the announcement of the policy. With the dramatic rise in bond prices, the threat of European intervention to support bondholder claims in the Western Hemisphere waned, and the U.S. was able to exert its role as regional hegemon. We find some evidence that the Corollary spurred export growth and better fiscal management by reducing conflict in the region, but it appears that debt settlements were driven primarily by gunboat diplomacy and the threat of lost sovereignty.