Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis
AbstractThis paper links business cycle volatility to barriers on international mobility of goods and capital. Theory predicts that capital market integration should lower consumption volatility while raising investment volatility, if most shocks are country-specific and transitory. The removal of barriers to trade in goods should enhance specialization and hence output volatility. We test these ideas using a unique panel data set which includes indicators of barriers to trade in both goods and capital flows. However, our empirical results indicate that neither the degree of capital mobility, nor the degree of goods mobility is strongly correlated with the volatility of consumption, investment or output. This may reflect the fact that many business cycle shocks are both persistent and common to many countries.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4208.
Date of creation: Aug 1994
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Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- F31 - International Economics - - International Finance - - - Foreign Exchange
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Boston University - Institute for Economic Development
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