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The link between trade openness, export diversification, institutions and output volatility in transition countries

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  • Balavac, Merima
  • Pugh, Geoff

Abstract

This paper investigates the role of trade openness, export diversification and institutions as potential predictors of output volatility in 25 transition economies in the period 1996–2010. Our results suggest that diversification may not attenuate the output volatility effects of openness for transition countries already at medium or higher levels of diversification, but nonetheless may have this effect at lower levels of diversification. Further, while inflation volatility and conflict both increase output volatility, better political institutions contribute to output stability in transition countries. In addition, we find that differences between diversification at the export margins are not just conceptual, but also substantive: the effect of openness is conditional on export diversification at the intensive margin but not at the extensive margin. These findings are robust to different assumptions regarding the potential endogeneity of openness and institutional quality as well as to alternative proxies for institutions and output volatility and additional control variables.

Suggested Citation

  • Balavac, Merima & Pugh, Geoff, 2016. "The link between trade openness, export diversification, institutions and output volatility in transition countries," Economic Systems, Elsevier, vol. 40(2), pages 273-287.
    • Handle: RePEc:eee:ecosys:v:40:y:2016:i:2:p:273-287
    DOI: 10.1016/j.ecosys.2016.02.001
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    More about this item

    Keywords

    Trade openness; Export diversification; Institutions; Output volatility; Export margins; Transition;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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