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External Crisis Vulnerability in Latin America and the Caribbean

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  • Cavallo, Eduardo A.
  • Fernández-Arias, Eduardo

Abstract

This paper assesses the vulnerability of Latin American and Caribbean (LAC) economies to external crises. It shows that while the average LAC economy has made significant strides to reduce vulnerability to crises to its historical minimum, there is still considerable room for improvement, compared to both advanced and non-advanced economies. When compared to other non-advanced economies, the average LAC economy displays a higher level of vulnerability, mainly due to slower improvements in portfolio composition and less accumulation of international reserves since 2000. Advanced economies have lower exposure to external risk factors and a structural resilience advantage to prevent exposure from leading to crises. This analysis highlights the need for LAC economies to focus more on enhancing their risk-mitigating strategies concerning the composition of their external portfolios and reserves accumulation, which will provide a stronger buffer against external shocks and promote overall economic resilience.

Suggested Citation

  • Cavallo, Eduardo A. & Fernández-Arias, Eduardo, 2023. "External Crisis Vulnerability in Latin America and the Caribbean," IDB Publications (Working Papers) 12965, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:12965
    DOI: http://dx.doi.org/10.18235/0005010
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    References listed on IDEAS

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    1. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
    2. Catão, Luis A.V. & Milesi-Ferretti, Gian Maria, 2014. "External liabilities and crises," Journal of International Economics, Elsevier, vol. 94(1), pages 18-32.
    3. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    4. Guillermo A. Calvo, 1998. "CAPITAL FLOWS AND CAPITAL-MARKET CRISES: The Simple Economics of Sudden Stops," Journal of Applied Economics, Taylor & Francis Journals, vol. 1(1), pages 35-54, November.
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    More about this item

    Keywords

    External crisis; Financial crisis; External balance sheet; International reserves; Macroeconomic imbalances; External debt; Foreign Direct Investment; External assets and liabilities;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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