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Does openness imply greater exposure ?

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  • Calderon, Cesar
  • Loayza, Norman
  • Schmidt-Hebbel, Klaus

Abstract

External exposure can be measured by the sensitivity of first and second moments of economic growth to openness and foreign shocks. This paper provides an empirical evaluation of external exposure using panel data methods for a worldwide sample of countries. Controlling for domestic conditions, the paper examines the growth and volatility effects of outcome measures of trade and financial integration, as well as four types of foreign shocks: terms of trade changes, trading partners'growth rates, international real interest rate changes, and net regional capital inflows. The paper analyzes the possibility of nonlinearities by allowing the growth and volatility effects of openness to vary with the general level of economic development and by letting the effects of foreign shocks depend on the degree of trade and financial integration. The findings point toward strong non-monotonic effects of openness and external shocks on growth and volatility. Moreover, all in all, the results contradict the view that international integration increases external vulnerability by hurting growth and increasing volatility or by amplifying the adverse effect of external shocks.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3733.

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Date of creation: 01 Oct 2005
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Handle: RePEc:wbk:wbrwps:3733

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Cited by:
  1. Juan de Dios Tena & César Salazar, 2008. "Explaining inflation and output volatility in Chile: an empirical analysis of forty years," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, UN - RCE - CID.
  2. Loayza, Norman & Olaberria, Eduardo & Rigolini, Jamele & Christiaensen, Luc, 2009. "Natural disasters and growth - going beyond the averages," Policy Research Working Paper Series 4980, The World Bank.
  3. AkIn, Cigdem & Kose, M. Ayhan, 2008. "Changing nature of North-South linkages: Stylized facts and explanations," Journal of Asian Economics, Elsevier, Elsevier, vol. 19(1), pages 1-28, February.
  4. Jansen, Marion & Lennon, Carolina & Piermartini, Roberta, 2009. "Exposure to External Country Specific Shocks and Income Volatility," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7123, C.E.P.R. Discussion Papers.
  5. Kaltani, Linda & Loayza, Norman V., 2008. "Initial conditions and the outcome of economic reform," Economics Letters, Elsevier, Elsevier, vol. 101(3), pages 230-233, December.
  6. Graafland, J.J., 2008. "Market operation and distributive justice: An evaluation of the ACCRA confession," MPRA Paper 20276, University Library of Munich, Germany.
  7. EDWARDS, Jeffrey, 2009. "Trading Partner Volatility And The Ability For A Country To Cope: A Panel Gmm Model, 1970-2005," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 9(2).

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