Does Trade Openness Make Countries Vulnerable?
AbstractThis paper focuses on the welfare costs of exposure to shocks linked to trade openness, an issue that is of main interest for international economic policy. It addresses the question as to whether the current process of trade liberalisation has a net destabilising effect on partner countries, increasing their vulnerability. Starting from a broader definition of vulnerability than simply vulnerability to poverty because of trade openness, this paper highlights, presenting both probit and 3SLS estimates, a robust and significant long term relationship (1960-2007), in a large sample of countries, between the “extreme volatility” of consumption (crisis and boom) - induced by trade openness - and the deviation of consumption growth from its expected path. The novelty of this paper lies in its ability to match two strands of the literature (volatility and vulnerability). It improves the existing literature on aggregate volatility by adding a forward looking lens; a feasible notion of benchmark and a counterfactual, all essential elements of a vulnerability framework.
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Bibliographic InfoPaper provided by Sapienza University of Rome, DISS in its series Working Papers with number 3/10.
Date of creation: Jan 2010
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trade openness; vulnerability; volatility; probit; 3SLS.;
Find related papers by JEL classification:
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
- F10 - International Economics - - Trade - - - General
- C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- D60 - Microeconomics - - Welfare Economics - - - General
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