Project Management

Sudden Stops, Financial Frictions, And Labor Market Flows: Evidence From Latin America

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Executive Summary

Sudden stops and international financial crises have been a main feature of developing countries in the last three decades. While their aggregate effects are well known, the disaggregated channels through which they work are not well explored yet. In this paper, the authors study the sectoral responses that take place over episodes of sudden stops. Using job flows from a sectoral panel dataset for four Latin American countries, they find that sudden stops are characterized as periods of lower job creation and increased job destruction. Moreover, these effects are heterogeneous across sectors: They find that when a sudden stop occurs, sectors with higher dependence on external financing experience lower job creation. In turn, sectors with higher liquidity needs experience significantly larger job destruction.

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