External finance is the bane of states, argues Didac Queralt in this excellent new book, which takes a fresh look at the successes and failures of state building in the Global South in the nineteenth century. The main factor determining these varying experiences is the degree to which states borrowed externally. States that depended on foreign finance, either because of burgeoning war expenses or because domestic credit markets were unable to fund developmental projects like railroad building, did not invest in domestic tax collection. This eventually undermined their capacity to raise revenue. The effects of this divergence are still visible in present-day data.

Queralt’s argument is well structured and tightly narrated. He expertly combines qualitative and quantitative evidence, bringing new data and methods to the venerable literature on state capacity. Each chapter adds a new building block. Much of the first part of the book is devoted to analyzing the globalization of credit in the nineteenth century. Where some authors might have resorted to expositional fillers, Queralt deftly and forcefully demonstrates how finance became cheap, in part because it was backed by empire. Western bondholders demanded that developing states hand over assets or revenue sources in case of default. As a last resort, they could enforce their claims on sovereign borrowers