Working Paper: NBER ID: w13489
Authors: Michael D. Bordo; Alberto F. Cavallo; Christopher M. Meissner
Abstract: 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.
Keywords: sudden stops; capital inflows; emerging markets; globalization; financial crises
JEL Codes: F21; F32; N1; N10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| original sin (Y60) | sudden stop (F32) |
| current account deficits (F32) | sudden stop (F32) |
| reliance on foreign capital (F21) | sudden stop (F32) |
| sudden stop (F32) | per capita output growth (O47) |
| sudden stop + banking crisis (F65) | per capita output growth (O47) |
| sudden stop + currency crisis (F31) | per capita output growth (O47) |
| sudden stop + debt crisis (F65) | per capita output growth (O47) |