Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality
Eduardo Cavallo and
Jeffrey Frankel
No 4544, Research Department Publications from Inter-American Development Bank, Research Department
Abstract:
Openness to trade is one factor that has been identified as determining whether a country is prone to sudden stops in capital inflows, crashes in currencies, or severe recessions. Some believe that openness raises vulnerability to foreign shocks, while others believe that it makes adjustment to crises less painful. Several authors have offered empirical evidence that having a large tradable sector reduces the contraction necessary to adjust to a given cut-off in funding. This would help explain lower vulnerability to crises in Asia than in Latin America. Such studies may, however, be subject to the problem that trade is endogenous. Using the gravity instrument for trade openness, which is constructed from geographical determinants of bilateral trade, this paper finds that openness indeed makes countries less vulnerable, both to severe sudden stops and currency crashes, and that the relationship is even stronger when correcting for the endogeneity of trade.
Date: 2007-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)
Downloads: (external link)
http://www.iadb.org/research/pub_hits.cfm?pub_id=W ... e_name=pubWP-618.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.iadb.org/research/pub_hits.cfm?pub_id=WP-618&pub_file_name=pubWP-618.pdf [301 Moved Permanently]--> https://www.iadb.org/research/pub_hits.cfm?pub_id=WP-618&pub_file_name=pubWP-618.pdf)
Related works:
Journal Article: Does openness to trade make countries more vulnerable to sudden stops, or less? Using gravity to establish causality (2008) 
Working Paper: Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, or Less? Using Gravity to Establish Causality (2004) 
Working Paper: Does Openness to Trade Make Countries More Vulnerable to Sudden Stops, Or Less? Using Gravity to Establish Causality (2004) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:idb:wpaper:4544
Access Statistics for this paper
More papers in Research Department Publications from Inter-American Development Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().