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

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  • Cavallo, Eduardo A.

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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  • Cavallo, Eduardo A., 2006. "Trade, Gravity and Sudden Stops: On How Commercial Trade Can Increase the Stability of Capital Flows," IDB Publications (Working Papers) 1945, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:1945
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    Cited by:

    1. Eduardo A. Cavallo & Andrés Velasco, 2006. "Quid pro Quo: National Institutions and Sudden Stops in International Capital Movements," Research Department Publications 4490, Inter-American Development Bank, Research Department.
    2. Cavallo, Eduardo & Powell, Andrew & Pedemonte, Mathieu & Tavella, Pilar, 2015. "A new taxonomy of Sudden Stops: Which Sudden Stops should countries be most concerned about?," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 47-70.
    3. Eduardo A. Cavallo, 2008. "Output Volatility and Openness to Trade: a Reassessment," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2008), pages 105-152, September.
    4. Jeffrey Frankel, 2005. "Contractionary Currency Crashes In Developing Countries," CID Working Papers 117, Center for International Development at Harvard University.
    5. Jia, Bijie & Kim, Hyeongwoo, 2015. "Government Spending Shocks and Private Activity: The Role of Sentiments," MPRA Paper 66263, University Library of Munich, Germany.
    6. Cavallo, Eduardo A. & Frankel, Jeffrey A., 2008. "Does openness to trade make countries more vulnerable to sudden stops, or less? Using gravity to establish causality," Journal of International Money and Finance, Elsevier, vol. 27(8), pages 1430-1452, December.
    7. Gordon H. Hanson & Craig McIntosh, 2012. "Birth Rates and Border Crossings: Latin American Migration to the US, Canada, Spain and the UK," Economic Journal, Royal Economic Society, vol. 122(561), pages 707-726, June.
    8. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2008. "Assessing the Emerging Global Financial Architecture: Measuring the Trilemma's Configurations over Time," NBER Working Papers 14533, National Bureau of Economic Research, Inc.
    9. Kim, Hyeongwoo & Zhang, Shuwei, 2018. "Understanding Why Fiscal Stimulus Can Fail through the Lens of the Survey of Professional Forecasters," MPRA Paper 89326, University Library of Munich, Germany.
    10. Joshua Aizenman & Menzie D. Chinn & Hiro Ito, 2012. "The Financial Crisis, Rethinking of the Global Financial Architecture, and the Trilemma," Chapters, in: Masahiro Kawai & Peter J. Morgan & Shinji Takagi (ed.), Monetary and Currency Policy Management in Asia, chapter 6, Edward Elgar Publishing.
    11. 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.
    12. 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.
    13. Gordon Hanson & Pia Orrenius & Madeline Zavodny, 2023. "US Immigration from Latin America in Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 37(1), pages 199-222, Winter.
    14. Kurz, Christopher & Senses, Mine Z., 2016. "Importing, exporting, and firm-level employment volatility," Journal of International Economics, Elsevier, vol. 98(C), pages 160-175.
    15. Hanson, Gordon H. & Xiang, Chong, 2013. "Exporting Christianity: Governance and doctrine in the globalization of US denominations," Journal of International Economics, Elsevier, vol. 91(2), pages 301-320.
    16. 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).

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