These findings may indicate that the forces driving inflow-driven sudden stops may differ from those driving outflow-driven sudden stops. Hence, we conduct our regression analysis on the determinants of the likelihood of sudden stops taking place by estimating a _Probit_ model using an “ _effective_ ” sample of 82 countries with annual information over the period 1970-2007. We find the following results: First, global investors are more likely to pull out or stop bringing their funds to countries with volatile export base (as proxied by natural resource abundance), and poor economic performance (as signaled by low growth). Rigid exchange rate regimes and high integration to financial markets heighten the vulnerability of the country to the whims of global investors.

Second, local residents are prone to invest their money abroad when the macroeconomic framework is unsound (as proxied by high inflation) and/or when there is a boom in earnings from sales abroad (i.e. current account surpluses). Rising international financial integration facilitates local investors to divert resources into foreign assets.

Third, financial openness makes the domestic country more vulnerable to sudden stops caused by either global investors or local residents. Inflow-driven sudden stops are less frequent in countries with higher shares of FDI (net and gross) in total flows (net and gross) although local residents are more likely to invest abroad (outflow-driven sudden stops) in countries with higher shares of FDI.

Fourth, the health of the financial system seems to affect only the decisions of local investors to pull their funds out of the country (outflow-driven sudden stops). This result, however, is not robust to other indicators.

Fifth, some policy implications can be extracted from our empirical analysis. We find that domestic investors invest their capital abroad in times of macroeconomic mismanagement –as signaled by the lack of price stability– or when there are high external savings. Regarding the former, a coherent and sustainable macroeconomic framework that guarantee price stability (low inflation) and shield the economy from destabilizing shocks required. The latter refers to a stylized fact observed in emerging markets: countries exporting savings and importing FDI. According to a recent strand of the literature, this trend reflects financial system inefficiencies associated with underdeveloped financial markets –which, in turn, raise the cost of debt financing for domestic firms (Caballero, Farhi and Gourinchas, 2008; Valderrama and Smith, 2009). Hence, policies towards the deepening of local financial markets may help domestic agents redirect their funds towards a richer menu of financial instruments at home.

The likelihood of sudden stops in gross inflows to the domestic country (by foreign investors) is lower when the domestic economy is growing and the world interest rate is lower. To some extent, push factors such as the evolution of the world interest rate help determine the entry of foreign capital. Hence, policymakers should build sound macroeconomic policy frameworks that shield the economy from fluctuations in external factors —such as, movements in the world interest rates. If lower interest rates in industrial economies (ceteris paribus the level of global 19