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

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.

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Year of publication:	2006-12
Authors:	Cavallo, Eduardo Alfredo
Institutions:	Inter-American Development Bank
Subject:	Financial Sector \| WP-588

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Extent:	application/pdf
Series:	IDB Publications (Working Papers).
Type of publication:	Book / Working Paper
Notes:	The text is part of a series IDB Working Paper Series Number 6839
Source:	RePEc - Research Papers in Economics

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