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Trade, Gravity and Sudden Stops: On How Commercial Trade Can Increase the Stability of Capital Flows

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  • Eduardo A. Cavallo

Abstract

Financial stability is an important policy objective, since crises are associated with large economic, social and political costs. This paper contributes to the discussion by providing new theoretical and empirical evidence on the causal connection between lack of exposure to commercial trade and proclivity to sudden stops. On the theoretical front, the paper shows how exposure to trade raises the creditworthiness of countries and reduces the probability of sudden stops.

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Bibliographic Info

Paper provided by Inter-American Development Bank in its series IDB Publications with number 6839.

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Date of creation: Dec 2006
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Handle: RePEc:idb:brikps:6839

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Keywords: Financial Sector; WP-588;

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References

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Citations

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Cited by:
  1. Jeffrey A. Frankel & Eduardo A. Cavallo, 2004. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, Or Less? Using Gravity to Establish Causality," NBER Working Papers, National Bureau of Economic Research, Inc 10957, National Bureau of Economic Research, Inc.
  2. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2008. "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," NBER Working Papers, National Bureau of Economic Research, Inc 14533, National Bureau of Economic Research, Inc.
  3. Joshua Aizenman & Menzie D. Chinna & Hiro Ito, 2010. "The Financial Crisis, Rethinking of the Global Financial Architecture, and the Trilemma," Working Papers, eSocialSciences id:3138, eSocialSciences.
  4. Eduardo A. Cavallo & Andrés Velasco, 2006. "Quid pro Quo: National Institutions and Sudden Stops in International Capital Movements," Research Department Publications, Inter-American Development Bank, Research Department 4490, Inter-American Development Bank, Research Department.
  5. Gordon H. Hanson & Craig McIntosh, 2010. "Birth Rates and Border Crossings: Latin American Migration to the US, Canada, Spain, and the UK," NBER Working Papers, National Bureau of Economic Research, Inc 16471, National Bureau of Economic Research, Inc.
  6. Hanson, Gordon H. & Xiang, Chong, 2013. "Exporting Christianity: Governance and doctrine in the globalization of US denominations," Journal of International Economics, Elsevier, Elsevier, vol. 91(2), pages 301-320.
  7. EDWARDS, Jeffrey, 2009. "Trading Partner Volatility And The Ability For A Country To Cope: A Panel Gmm Model, 1970-2005," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 9(2).
  8. Eduardo A. Cavallo, 2007. "Output Volatility and Openness to Trade: A Reassessment," Research Department Publications, Inter-American Development Bank, Research Department 4518, Inter-American Development Bank, Research Department.
  9. Jeffrey A. Frankel, 2005. "Contractionary Currency Crashes in Developing Countries," NBER Working Papers, National Bureau of Economic Research, Inc 11508, National Bureau of Economic Research, Inc.
  10. Uluc Aysun & Adam Honig, 2008. "Bankruptcy Costs, Liability Dollarization, and Vulnerability to Sudden Stops," Working papers, University of Connecticut, Department of Economics 2008-41, University of Connecticut, Department of Economics.
  11. Aizenman, Joshua & Chinn, Menzie D. & Ito, Hiro, 2010. "The emerging global financial architecture: Tracing and evaluating new patterns of the trilemma configuration," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(4), pages 615-641, June.

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