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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. Frankel, Jeffrey & Cavallo, Eduardo, 2004. "Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality," Working Paper Series rwp04-038, Harvard University, John F. Kennedy School of Government.
  2. Aysun, Uluc & Honig, Adam, 2011. "Bankruptcy costs, liability dollarization, and vulnerability to sudden stops," Journal of Development Economics, Elsevier, vol. 95(2), pages 201-211, July.
  3. Eduardo A. Cavallo & Andrés Velasco, 2006. "Quid pro Quo: National Institutions and Sudden Stops in International Capital Movements," IDB Publications 6711, Inter-American Development Bank.
  4. 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, vol. 9(2).
  5. Aizenman, Joshua & Chinn, Menzie David & Ito, Hiro, 2009. "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," Santa Cruz Department of Economics, Working Paper Series qt840728sc, Department of Economics, UC Santa Cruz.
  6. Gordon H. Hanson & Chong Xiang, 2011. "Exporting Christianity: Governance and Doctrine in the Globalization of US Denominations," NBER Working Papers 16964, National Bureau of Economic Research, Inc.
  7. 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 16471, National Bureau of Economic Research, Inc.
  8. Frankel, Jeffrey, 2005. "Contractionary Currency Crashes In Developing Countries," Working Paper Series rwp05-017, Harvard University, John F. Kennedy School of Government.
  9. Eduardo A. Cavallo, 2007. "Output Volatility and Openness to Trade: A Reassessment," Research Department Publications 4518, Inter-American Development Bank, Research Department.
  10. Aizenman, Joshua & Chinn, Menzie & Ito, Hiro, 2010. "The Financial Crisis, Rethinking of the Global Financial Architecture, and the Trilemma," ADBI Working Papers 213, Asian Development Bank Institute.
  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, vol. 29(4), pages 615-641, June.

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