The dog that didn't bite: Sudden Stops in Emerging and Developing Economies during COVID-19

Eduardo A. Cavallo, Juan M. Hernández, María José González Jaramillo and Andrew Powell

Emerging Markets Review, 2025, vol. 65, issue C

Abstract: Despite an initial reversal of capital inflows, the COVID-19 pandemic resulted in relatively mild impacts on net capital flows to Emerging and Developing Economies. In contrast to previous crises, gross capital inflows offset residents' outflows, resulting in modest required current account adjustments. Liquid international markets, access to official resources and sound fundamentals in several countries allowed for capital inflows, preventing the additional costs of widespread Sudden Stops during the pandemic. We demonstrate that a parsimonious empirical model is able to discriminate quite well, to show that those countries with weaker fundamentals suffered Sudden Stops in net flows.

Keywords: Sudden Stops; Capital flows; Balance of Payments; Capital Account; COVID-19; Emerging and Developing Economies (search for similar items in EconPapers)
JEL-codes: F30 F32 F40 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:65:y:2025:i:c:s1566014125000123

DOI: 10.1016/j.ememar.2025.101263

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