Sudden Stops : Are Global and Local Investors Alike?

The main goal of this paper is to characterize the determinants of sudden stops caused by domestic vis-a-vis foreign residents. Are the decisions of domestic investors to invest abroad or of foreign investors to cut off funds from the domestic economy governed by the same set of determinants? Given the distribution of different types of sudden stop episodes over time and its different macroeconomic consequences, the authors argue that the determinants may not be alike. Using an effective sample of 82 countries with annual information over the period 1970-2007, the analysis finds that global investors are less likely to stop bringing their capital when their economy is growing and the world interest rate is lower. Domestic agents are more willing to invest abroad if the macroeconomic performance of the domestic economy is poor (high inflation), the financial system is weak, and there are high external savings (current account surpluses). Increasing financial openness makes the domestic country more vulnerable to sudden stops caused by either local or global investors. Finally, countries with higher shares of foreign direct investment are less prone to inflow-driven sudden stops, whereas the opposite holds for outflow-driven sudden stops.

Bibliographic Details

Main Authors:	Calderón, César, Kubota, Megumi
Language:	English
Published:	2011-02-01
Subjects:	ADVANCED COUNTRIES, BALANCE OF PAYMENTS, BANK ASSETS, BANK CREDIT, BANK DEPOSIT, BANK DEPOSITS, BANK POLICY, BANKING CRISES, BANKING CRISIS, BANKING SYSTEM, BOND MARKET, BOND MARKET CAPITALIZATION, BOND MARKETS, BONDS, BUDGET SURPLUS, BUSINESS CYCLES, CAPITAL ACCOUNT, CAPITAL ACCOUNT LIBERALIZATION, CAPITAL CONTROLS, CAPITAL FLIGHT, CAPITAL FLOW, CAPITAL FLOWS, CAPITAL GROWTH, CAPITAL INFLOWS, CAPITAL MARKET, CAPITAL MARKET REFORM, CAPITAL MARKETS, CAPITAL OUTFLOWS, CAPITAL STOCK, CENTRAL BANK, COMMUNICATION TECHNOLOGY, CONSUMER PRICE INDEX, CORPORATE GOVERNANCE, CREDIT CONSTRAINTS, CREDIT GROWTH, CURRENCY, CURRENCY CRISES, CURRENCY CRISIS, CURRENCY MISMATCHES, CURRENT ACCOUNT, CURRENT ACCOUNT BALANCE, CURRENT ACCOUNT DEFICITS, CURRENT ACCOUNT SURPLUSES, DATA AVAILABILITY, DEBT, DEBT BURDEN, DEBT FINANCING, DEBT FLOWS, DEPOSIT, DERIVATIVES, DEVELOPING COUNTRIES, DOMESTIC CREDIT, DOMESTIC CURRENCY, DOMESTIC ECONOMY, DOMESTIC FINANCIAL MARKETS, DOMESTIC INVESTORS, ECONOMIC PERFORMANCE, EMERGING MARKET, EMERGING MARKET ECONOMIES, EMERGING MARKETS, EQUITY FLOWS, EQUITY MARKETS, EXCHANGE RATE REGIME, EXCHANGE RATE REGIMES, EXPORT BASE, EXPOSURE, EXTERNAL ASSETS, EXTERNAL FINANCE, EXTERNAL FINANCING, FEDERAL RESERVE, FEDERAL RESERVE BANK, FINANCIAL DERIVATIVES, FINANCIAL DEVELOPMENT, FINANCIAL FLOWS, FINANCIAL INFLOWS, FINANCIAL INFRASTRUCTURE, FINANCIAL INSTITUTION, FINANCIAL INSTITUTIONS, FINANCIAL INSTRUMENTS, FINANCIAL OPENNESS, FINANCIAL SECTOR, FINANCIAL SECTOR INDICATORS, FINANCIAL SECTORS, FINANCIAL SERVICES, FINANCIAL SHOCKS, FINANCIAL SYSTEM, FISCAL DEFICITS, FISCAL POLICIES, FISCAL POLICY, FLEXIBLE EXCHANGE RATE, FLOWS OF CAPITAL, FOREIGN ASSETS, FOREIGN BANK, FOREIGN CAPITAL, FOREIGN DIRECT INVESTMENT, FOREIGN EQUITIES, FOREIGN FINANCING, FOREIGN INTEREST, FOREIGN INVESTORS, FOREIGN PORTFOLIO, FOREIGN PORTFOLIO INVESTMENT, GLOBAL CAPITAL, GLOBAL CAPITAL FLOWS, GLOBAL ECONOMY, GLOBAL INVESTORS, GLOBALIZATION, GOVERNMENT BUDGET, GOVERNMENT EXPENDITURE, GROWTH RATE, GROWTH RATES, HIGH INFLATION, INCOME, INCOME LEVELS, INDEBTED COUNTRIES, INDUSTRIAL COUNTRIES, INFLATION, INFLATION RATE, INFORMATION ASYMMETRIES, INFRASTRUCTURE PROJECTS, INSURANCE, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL BORROWING, INTERNATIONAL CAPITAL, INTERNATIONAL CAPITAL MARKETS, INTERNATIONAL CREDIT, INTERNATIONAL ECONOMICS, INTERNATIONAL ECONOMIES, INTERNATIONAL FINANCIAL INTEGRATION, INTERNATIONAL FINANCIAL MARKETS, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL INVESTMENTS, INTERNATIONAL MARKETS, INTERNATIONAL RESERVES, INVESTMENT CLIMATE, INVESTMENT FLOWS, LIABILITY, LIQUID ASSETS, LIQUIDITY, LOCAL CAPITAL MARKETS, LOCAL FINANCIAL MARKETS, LOCAL INVESTORS, MACROECONOMIC MISMANAGEMENT, MACROECONOMIC PERFORMANCE, MACROECONOMIC POLICIES, MACROECONOMIC POLICY, MACROECONOMIC STABILITY, MACROECONOMIC VULNERABILITY, MICRO DATA, MIDDLE-INCOME COUNTRIES, MONETARY FUND, MONETARY POLICY, MONETARY STABILITY, MONEY MARKET, MONEY MARKET RATE, NATURAL RESOURCE, NATURAL RESOURCES, NET CAPITAL, NET DEBT, NON-PERFORMING LOANS, OUTPUT, POLICY RESPONSES, PORTFOLIO, PORTFOLIO INFLOWS, PORTFOLIO INVESTMENT, PORTFOLIOS, POSITIVE COEFFICIENT, PRICE STABILITY, PRIVATE BOND, PRIVATE CAPITAL, PRIVATE CAPITAL INFLOWS, PRIVATE CREDIT, PRIVATE SECTOR FINANCE, PUSH FACTORS, RATE OF GROWTH, REAL ECONOMIC ACTIVITY, REAL EXCHANGE RATE, REAL EXCHANGE RATES, REAL INTEREST, REAL INTEREST RATE, REGULATORY CAPITAL, REGULATORY FRAMEWORKS, RESERVE, RESERVE ACCUMULATION, RESERVES, RETURN, RETURNS, RISK AVERSION, SAVINGS, SECURITIES, SMALL COUNTRIES, STOCK MARKET, STOCK MARKET CAPITALIZATION, STOCKS, T-BILLS, TAX, TAX SYSTEMS, TRADE BALANCE, TRADING, TREASURY, TREASURY BILLS, VOLATILITY, WORLD DEVELOPMENT INDICATORS, WORLD INTEREST RATE, WORLD MARKET,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110214154448 https://hdl.handle.net/10986/3336
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