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

57 Pages Posted: 25 Apr 2011

See all articles by Eduardo A. Cavallo

Eduardo A. Cavallo

Inter-American Development Bank (IDB) - Research Department

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Date Written: December 2006

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.

Suggested Citation

Cavallo, Eduardo A., Trade, Gravity and Sudden Stops: On How Commercial Trade Can Increase the Stability of Capital Flows (December 2006). IDB Working Paper No. 491, Available at SSRN: https://ssrn.com/abstract=1820064 or http://dx.doi.org/10.2139/ssrn.1820064

Eduardo A. Cavallo (Contact Author)

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

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