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Trade Openness, Economic Size, and Macroeconomic Volatility: Theory and Empirical Evidence

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  • Karras, Georgios

    ()
    (University of Illinois at Chicago)

Abstract

The 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 Info

Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

Volume (Year): 21 (2006)
Issue (Month): ()
Pages: 254-272

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Handle: RePEc:ris:integr:0355

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Web page: http://econo.sejong.ac.kr/
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Related research

Keywords: Openness; Macroeconomic Volatility; Investment; Consumption;

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Cited by:
  1. Maria Grydaki & Stilianos Fountas, 2008. "Exchange Rate Volatility and Output Volatility: a Theoretical Approach," Discussion Paper Series 2008_16, Department of Economics, University of Macedonia, revised Dec 2008.
  2. Furceri, Davide & Karras, Georgios, 2007. "Country size and business cycle volatility: Scale really matters," Journal of the Japanese and International Economies, Elsevier, vol. 21(4), pages 424-434, December.
  3. Maria Grydaki & Stilianos Fountas, 2010. "What Explains Output Volatility? Evidence from the G3," Discussion Paper Series 2010_09, Department of Economics, University of Macedonia, revised Jul 2010.
  4. 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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