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Trade openness reduces growth volatility when countries are well diversified

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  • Haddad, Mona E.
  • Lim, Jamus Jerome
  • Saborowski, Christian

Abstract

This paper addresses the mechanisms by which trade openness affects growth volatility. Using a diverse set of export diversification indicators, it presents strong evidence pointing to an important role for export diversification in reducing the effect of trade openness on growth volatility. The authors also identify positive thresholds for product diversification at which the effect of openness on volatility changes sign. The effect is shown to be positive only for a minority of countries with highly concentrated export baskets. This result is shown to be robust to both explicit accounting for endogeneity as well as the inclusion of a host of additional controls.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5222.

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Date of creation: 01 Feb 2010
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Handle: RePEc:wbk:wbrwps:5222

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Keywords: Economic Conditions and Volatility; Achieving Shared Growth; Markets and Market Access; Free Trade; Emerging Markets;

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References

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  1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  2. Raddatz, Claudio, 2007. "Are external shocks responsible for the instability of output in low-income countries?," Journal of Development Economics, Elsevier, vol. 84(1), pages 155-187, September.
  3. Julian di Giovanni & Andrei A. Levchenko, 2006. "Trade Openness and Volatility," Development Working Papers 219, Centro Studi Luca d\'Agliano, University of Milano.
  4. Bejan, Maria, 2006. "Trade Openness and Output Volatility," MPRA Paper 2759, University Library of Munich, Germany.
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Cited by:
  1. Pedro Miguel Soares Brinca, 2013. "Distortions in the Neoclassical Growth Model: A Cross Country Analysis," 2013 Papers pbr150, Job Market Papers.
  2. Markus Leibrecht & Johann Scharler, 2012. "Government Size and Business Cycle Volatility; How Important Are Credit Constraints?," Working Paper Series in Economics 237, University of Lüneburg, Institute of Economics.
  3. Emiliano Magrini & Pierluigi Montalbano, 2012. "Trade openness and vulnerability to poverty: Vietnam in the long-run (1992-2008)," Working Paper Series 3512, Department of Economics, University of Sussex.
  4. Costa Junior, Celso Jose, 2012. "Institutional Barrier and the World Income Distribution," MPRA Paper 45633, University Library of Munich, Germany.
  5. Hoekman, Bernard & Wilson, John S., 2010. "Aid for trade : building on progress today for tomorrow's future," Policy Research Working Paper Series 5361, The World Bank.
  6. Mojsoska Blazevski, Nikica & Kostadinov, Aleksandar & Gregg, Con & Uexkull, Erik von, 2012. "Skills Policies for Economic Diversification in the Former Yugoslav Republic of Macedonia- Enhancing local skills policies for the food and tourism sectors," MPRA Paper 42654, University Library of Munich, Germany.
  7. Parinduri, Rasyad, 2012. "Growth volatility and trade: evidence from the 1967-1975 closure of the Suez Canal," MPRA Paper 39040, University Library of Munich, Germany.
  8. Julie Regolo, 2013. "Export Diversification: How Much Does the Choice of the Trading Partner Matter?," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 13072, Institut d'Economie et Econométrie, Université de Genève.
  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.
  10. World Bank, 2011. "Trade Expansion through Market Connection : The Central Asian Markets of Kazakhstan, Kyrgyz Republic, and Tajikistan," World Bank Publications, The World Bank, number 2333.
  11. Xavier Cirera & Anabel Marin & Ricardo Markwald, 2011. "Explaining the Diversification Path of Exporters in Brazil: How Similar and Sophisticated are New Products?," Working Paper Series 2611, Department of Economics, University of Sussex.
  12. Sergey Kadochnikov & Anna Fedyunina, 2013. "Export diversification in the product space and regional growth: Evidence from Russia," Papers in Evolutionary Economic Geography (PEEG) 1327, Utrecht University, Section of Economic Geography, revised Dec 2013.
  13. repec:gen:geneem:13032 is not listed on IDEAS
  14. Von Uexkull, Erik, 2012. "Regional trade and employment in ECOWAS," ILO Working Papers 468791, International Labour Organization.

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