Big Data

Sudden Stops: Are Global And Local Investors Alike?

Date Added: Feb 2011
Format: PDF

The main goal of this paper is to characterize the determinants of sudden stops caused by domestic vis-?-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.