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Trade openness reduces growth volatility when countries are well diversified

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  • Haddad, Mona
  • Lim, Jamus Jerome
  • Pancaro, Cosimo
  • Saborowski, Christian

Abstract

This paper addresses the mechanisms by which trade openness affects growth volatility. Using a diverse set of export concentration measures, we present strong evidence pointing to an important role for export diversification in conditioning the effect of trade openness on growth volatility. Indeed, the effect of openness on volatility is shown to be negative for a significant proportion of countries with relatively diversified export baskets. JEL Classification: F15, F43, O24

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1491.

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Date of creation: Nov 2012
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Handle: RePEc:ecb:ecbwps:20121491

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Keywords: Export diversification; growth volatility; trade openness;

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  1. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  2. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September.
  3. Bejan, Maria, 2006. "Trade Openness and Output Volatility," MPRA Paper 2759, University Library of Munich, Germany.
  4. Julian di Giovanni & Andrei A. Levchenko, 2009. "Trade Openness and Volatility," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 558-585, August.
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Cited by:
  1. Von Uexkull, Erik, 2012. "Regional trade and employment in ECOWAS," ILO Working Papers 468791, International Labour Organization.
  2. Markus Leibrecht & Johann Scharler, 2012. "Government Size and Business Cycle Volatility; How Important Are Credit Constraints?," Working Papers 2012-04, Faculty of Economics and Statistics, University of Innsbruck.
  3. Parinduri, Rasyad, 2012. "Growth volatility and trade: evidence from the 1967-1975 closure of the Suez Canal," MPRA Paper 39040, University Library of Munich, Germany.
  4. Regolo, Julie, 2013. "Export diversification: How much does the choice of the trading partner matter?," Journal of International Economics, Elsevier, vol. 91(2), pages 329-342.
  5. World Bank, 2011. "Trade Expansion through Market Connection : The Central Asian Markets of Kazakhstan, Kyrgyz Republic, and Tajikistan," World Bank Publications, The World Bank, number 2333, August.
  6. Brinca, Pedro, 2013. "Distortions in the Neoclassical Growth Model: A Cross-Country Analysis," Research Papers in Economics 2013:13, Stockholm University, Department of Economics.
  7. Sergey Kadochnikov & Anna Fedyunina, 2013. "Export diversification in the product space and regional growth: Evidence from Russia," Papers in Evolutionary Economic Geography (PEEG) 1327, Utrecht University, Section of Economic Geography, revised Dec 2013.
  8. Emiliano Magrini & Pierluigi Montalbano, 2012. "Trade openness and vulnerability to poverty: Vietnam in the long-run (1992-2008)," Working Paper Series 3512, Department of Economics, University of Sussex.
  9. Mojsoska Blazevski, Nikica & Kostadinov, Aleksandar & Gregg, Con & Uexkull, Erik von, 2012. "Skills Policies for Economic Diversification in the Former Yugoslav Republic of Macedonia- Enhancing local skills policies for the food and tourism sectors," MPRA Paper 42654, University Library of Munich, Germany.
  10. repec:gen:geneem:13032 is not listed on IDEAS
  11. Costa Junior, Celso Jose, 2012. "Institutional Barrier and the World Income Distribution," MPRA Paper 45633, University Library of Munich, Germany.
  12. Xavier Cirera & Anabel Marin & Ricardo Markwald, 2011. "Explaining the Diversification Path of Exporters in Brazil: How Similar and Sophisticated are New Products?," Working Paper Series 2611, Department of Economics, University of Sussex.
  13. Hoekman, Bernard & Wilson, John S., 2010. "Aid for trade : building on progress today for tomorrow's future," Policy Research Working Paper Series 5361, The World Bank.
  14. Julie Regolo, 2013. "Export Diversification: How Much Does the Choice of the Trading Partner Matter?," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 13072, Institut d'Economie et Econométrie, Université de Genève.

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