Using a sample of 20 emerging countries from 1880 to 1913, we study the determinants and output effects of sudden stops in capital inflows during an era of intensified globalization. We find that higher levels of original sin (hard currency debt to total debt) and large current account deficits associated with reliance on foreign capital greatly increased the likelihood of experiencing a sudden stop. Trade openness and stronger commitment to the gold standard had the opposite effect. These results are robust for many sudden stop definitions used in the literature. Finally, we use a treatment effects model to show that after controlling for endogeneity sudden stops have a strong negative association with growth in per capita output. We also show that banking, currency and debt crises that were preceded by a sudden stop have much greater negative relation with growth than in the absence of a sudden stop.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13489.
Length: Date of creation: Oct 2007 Date of revision: Handle: RePEc:nbr:nberwo:13489
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Find related papers by JEL classification: F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements N1 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations N10 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - General, International, or Comparative
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Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001.
"Is the crisis problem growing more severe?,"
Economic Policy,
CEPR, CES, MSH, vol. 16(32), pages 51-82, 04.
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