TY - JOUR AU - Edwards,Sebastian TI - Sequencing of Reforms, Financial Globalization, and Macroeconomic Vulnerability JF - National Bureau of Economic Research Working Paper Series VL - No. 14384 PY - 2008 Y2 - October 2008 DO - 10.3386/w14384 UR - http://www.nber.org/papers/w14384 L1 - http://www.nber.org/papers/w14384.pdf N1 - Author contact info: Sebastian Edwards UCLA Anderson Graduate School of Management 110 Westwood Plaza, Suite C508 Box 951481 Los Angeles, CA 90095-1481 Tel: 310/206-6797 Fax: 310/206-5825 E-Mail: sebastian.edwards@anderson.ucla.edu M1 - published as Sebastian Edwards. "Sequencing of Reforms, Financial Globalization, and Macroeconomic Vulnerability," in Takeo Hoshi and Takatoshi Ito, organizers, "Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR" Journal of the Japanese and International Economies 23(2), June 2009 (Elsevier B.V.) (2009) AB - I use a large cross country data set and panel probit analysis to investigate the way in which the interaction between trade and financial openness affect the probability of external crises. This analysis is related to debate on the adequate sequencing of reform. I also investigate the role played by current account and fiscal imbalances, contagion, international reserves holdings, and the exchange rate regime as possible determinants of external crises. The results indicate that relaxing capital controls increases the likelihood of a country experiencing a sudden stop. Moreover, the results suggest that "financial liberalization first" strategies increase the degree of vulnerability to external crises. This is particularly the case if this strategy is pursued with pegged exchange rates and if it results in large current account imbalances. ER -