Countries hit by unexpected crises often look to their overseas diasporas for assistance. Some countries have tapped into this generosity of their diaspora by issuing bonds specifically targeted to their diaspora populations. Many policy makers have advocated more widespread use of these diaspora bonds because they provide distressed nations cheaper financing, as compared to outside markets, during times of distress (a “patriotic discount”).
Our article examines the most successful of diaspora programs, that of Israel, to ask how much cheaper the financing from these bonds has been, as compared to borrowing from the commercial markets, over the period 2011-2024.
It turns out that Israel’s diaspora bonds have paid investors a premium over market rates for most of the 2011-24 period. But in some periods of extreme stress, such as after the recent Hamas attack, diaspora financing has been cheaper. The unique relationship between Israel and its diaspora may be difficult to replicate. But Israel’s diaspora bond program has distinctive structural features that likely can be reproduced. Among those is a relationship of reciprocity where Israel pays a premium in good times in exchange for the diaspora taking a penalty in bad times.