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The Risk Content of Exports: A Portfolio View of International Trade

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  • Julian di Giovanni

    (International Monetary Fund)

  • Andrei A. Levchenko

    (University of Michigan)

Abstract

It has been suggested that countries whose exports are in especially risky sectors will experience higher output volatility. This paper develops a measure of the riskiness of a country's pattern of export specialization, and illustrates its features across countries and over time. The exercise reveals large cross-country differences in the risk content of exports. This measure is strongly correlated with the volatility of terms-of-trade, total exports, and output, but does not exhibit a close relationship to the level of income, overall trade openness, or other country characteristics. We then propose an explanation for what determines the risk content of exports, based on the theoretical literature exemplified by Turnovsky (1974). Countries with a comparative advantage in safe sectors or a strong enough comparative advantage in risky sectors will specialize, whereas countries whose comparative advantage in risky sectors is not too strong will diversify their export structure to insure against export income risk. We use both non-parametric and semiparametric techniques to demonstrate that these theoretical predictions are strongly supported by the data.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers576-600/r581.pdf
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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 581.

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Length: 55 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:mie:wpaper:581

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Postal: ANN ARBOR MICHIGAN 48109
Web page: http://www.fordschool.umich.edu/rsie/
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Keywords: trade; exports; risks;

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References

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  14. Andrei A. Levchenko & Julian di Giovanni, 2008. "Trade Openness and Volatility," IMF Working Papers 08/146, International Monetary Fund.
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Citations

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Cited by:
  1. Joël CARIOLLE, 2012. "Mesurer l’instabilité macroéconomique - Applications aux données de recettes d’exportation, 1970-2005," Working Papers I14, FERDI.
  2. 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.
  3. Aleksandra Parteka, 2013. "The Evolving Structure Of Polish Exports (1994-2010) – Diversification Of Products And Trade Partners," GUT FME Working Paper Series A 10, Faculty of Management and Economics, Gdansk University of Technology.
  4. Dalila NICET- CHENAF (GREThA UMR CNRS 5113) & Eric ROUGIER (GREThA UMR CNRS 5113), 2008. "Recent exports matter: export discoveries, FDI and Growth, an empirical assessment for MENA countries," Cahiers du GREThA 2008-22, Groupe de Recherche en Economie Théorique et Appliquée.
  5. Julie Regolo, 2013. "Export Diversification: How Much Does the Choice of the Trading Partner Matter?," Research Papers by the Department of Economics, University of Geneva 13072, Département des Sciences Économiques, Université de Genève.
  6. Joël CARIOLLE, 2012. "Measuring macroeconomic volatility - Applications to export revenue data, 1970-2005," Working Papers I14, FERDI.
  7. Pravin Krishna & Andrei A. Levchenko, . "Comparative Advantage, Complexity, and Volatility," Working Papers 632, Research Seminar in International Economics, University of Michigan.
  8. repec:gen:geneem:13032 is not listed on IDEAS
  9. 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.

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