Sudden Stops: Determinants and Output Effects in the First Era of Globalization, 1880-1913

Using a sample of 20 emerging countries from 1880 to 1913, we study the determinants and output effects of sudden stops in capital inflows during an era of intensified globalization. We find that higher levels of original sin (hard currency debt to total debt) and large current account deficits associated with reliance on foreign capital greatly increased the likelihood of experiencing a sudden stop. Trade openness and stronger commitment to the gold standard had the opposite effect. These results are robust for many sudden stop definitions used in the literature. Finally, we use a treatment effects model to show that after controlling for endogeneity sudden stops have a strong negative association with growth in per capita output. We also show that banking, currency and debt crises that were preceded by a sudden stop have much greater negative relation with growth than in the absence of a sudden stop.