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Monitoring export vulnerability to changes in growth rates of major global markets

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  • Hollweg, Claire H.
  • Lederman, Daniel
  • Reyes, Jose-Daniel

Abstract

Interest in assessing the impacts on developing countries of changes in major markets'economic performance has risen in tandem with global economic uncertainty over short- and medium-term growth prospects. This paper proposes a methodology to measure the vulnerability of a country's exports to fluctuations in the economic activity of foreign markets. Export vulnerability depends first on the overall level of export exposure, measured as the share of exports in gross domestic product, and second on the sensitivity of exports to fluctuations in foreign gross domestic product. The authors capture this sensitivity by estimating origin-destination specific elasticities of exports with respect to changes in foreign gross domestic product using a gravity model of trade. Furthermore, export vulnerability is computed separately for commodities and differentiated products. This methodology is applied to six developing countries, one from each World Bank region, selected to be otherwise similar yet differ in terms of the level of exposure to major global markets as well as the product composition of their export basket. Although the results suggest differences in elasticity estimates across regions as well as product categories, the principal source of international heterogeneity in export vulnerability results from differences in export exposure to global markets. This result calls for developing countries to diversify their export markets rather than shielding themselves from international markets, which would actually raise economic risk and vulnerability.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6266.

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Date of creation: 01 Nov 2012
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Handle: RePEc:wbk:wbrwps:6266

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Keywords: Economic Theory&Research; Emerging Markets; Free Trade; Trade Policy; Markets and Market Access;

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  1. James Feyrer, 2009. "Trade and Income -- Exploiting Time Series in Geography," NBER Working Papers 14910, National Bureau of Economic Research, Inc.
  2. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  3. Sebastian Edwards, 1997. "Openness, Productivity and Growth: What Do We Really Know?," NBER Working Papers 5978, National Bureau of Economic Research, Inc.
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  5. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July.
  6. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
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  8. Andrei A Levchenko & Logan T Lewis & Linda L Tesar, 2010. "The Collapse of International Trade during the 2008–09 Crisis: In Search of the Smoking Gun," IMF Economic Review, Palgrave Macmillan, vol. 58(2), pages 214-253, December.
  9. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2007. "Estimating Trade Flows: Trading Partners and Trading Volumes," NBER Working Papers 12927, National Bureau of Economic Research, Inc.
  10. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  11. Ann Harrison & Gordon Hanson, 1999. "Who Gains from Trade Reform? Some Remaining Puzzles," NBER Working Papers 6915, National Bureau of Economic Research, Inc.
  12. Neil Foster, 2008. "The Impact of Trade Liberalisation on Economic Growth: Evidence from a Quantile Regression Analysis," Kyklos, Wiley Blackwell, vol. 61(4), pages 543-567, November.
  13. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, vol. 53(1), pages 1-27, February.
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