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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.

Suggested Citation

  • Haddad, Mona E. & Lim, Jamus Jerome & Saborowski, Christian, 2010. "Trade openness reduces growth volatility when countries are well diversified," Policy Research Working Paper Series 5222, The World Bank.
  • Handle: RePEc:wbk:wbrwps:5222
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    More about this item

    Keywords

    Economic Conditions and Volatility; Achieving Shared Growth; Markets and Market Access; Free Trade; Emerging Markets;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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