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Trade Openness and Volatility

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  • Andrei A. Levchenko
  • Julian di Giovanni

Abstract

This paper examines the mechanisms through which output volatility is related to trade openness using an industry-level panel dataset of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade is accompanied by increased specialization. Third, sectors that are more open are less correlated with the rest of the economy. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the relationship between trade openness and overall volatility is positive and economically significant.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/146.

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Length: 60
Date of creation: 01 Jun 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/146

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Keywords: Trade; Trade policy; Industrial production; Manufacturing sector; trade openness; aggregate volatility; correlation; equation; output growth; statistics; impact of trade; standard errors; standard deviation; output volatility; trade flows; bilateral trade; international trade; correlations; trade opening; covariance; world trade; trading partners; equations; maximum likelihood estimator; trade volumes; per capita income; trade costs; instrumental variables; standard deviations; outliers; trade values; trade data; covariances; time series; political economy; terms of trade; bilateral trade flows; external shocks; import penetration; open economies; export shares; trade barriers; trade liberalization; elasticity of substitution; descriptive statistics; growing trade; measure of trade; external finance; increased trade; empirical specification; estimation procedure; trade models; trading partner; trade volume; standard error; world demand; computation; samples; increasing trade; factor endowments; significance level; trade changes; empirical exercise; sample size; trade expansion; bilateral trade barriers; dummy variable; exchange rate regime; closed economy; additional regressor; partner countries; income distribution; prediction; world prices; changes in trade; domestic economy; logarithm; measurement error; basic descriptive statistics; endogenous growth; aggregate trade; unskilled labor; impact of trade liberalization; world supply; market integration; average trade; global shocks; export patterns; open economy; pattern of specialization; world economy; volume of trade; economic outcomes; bilateral trade data; transport equipment; national border; aggregate shocks; linear regression; openness measure; trade patterns;

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