Trade Openness, Economic Size, and Macroeconomic Volatility: Theory and Empirical Evidence
AbstractThe effects of trade openness on macroeconomic volatility are theoretically ambiguous, so the issue must be resolved empirically. Most of the empirical evidence, however, has been mixed and inconclusive. This paper investigates the question using two data sets: one of 56 countries over 1951-1998, and another of 105 countries over 1960-1997. It is shown that, when their effects are jointly estimated, both economic size and trade openness have a sizable, negative, and generally statistically significant effect on the variability of output, consumption, investment, and the exchange rate. It is also found that depreciation rates are inversely related to both economic size and openness. These effects are robust across the two data sets and three different detrending methods.
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 21 (2006)
Issue (Month): ()
Openness; Macroeconomic Volatility; Investment; Consumption;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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- Davide Furceri & Georgios Karras, 2008. "Business cycle volatility and country zize :evidence for a sample of OECD countries," Economics Bulletin, AccessEcon, vol. 5(3), pages 1-7.
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