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Does Export Openness Increase Firm‐level Output Volatility?

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  • Claudia M. Buch
  • Jörg Döpke
  • Harald Strotmann

Abstract

There is a widespread concern that increased trade may lead to increased instability and thus risk at the firm level. Greater export openness can indeed affect firm‐level volatility by changing the exposure and the reaction of firms to macroeconomic developments. The net effect is ambiguous from a theoretical point of view. This paper provides firm‐level evidence on the link between openness and volatility. Using comprehensive data on more than 21,000 German manufacturing firms for the period 1980–2001, we analyse the evolution of firm‐level output volatility and the link between volatility and export openness. Our paper has three main findings. First, firm‐level output volatility is significantly higher than the level of aggregate volatility, but it displays similar patterns. Second, increased export openness lowers firm‐level output volatility. This effect is primarily driven by variations along the extensive margin, i.e. by the distinction between exporters and non‐exporters. Variations along the intensive margin, i.e. the volume of exports, tend to have a dampening impact on volatility as well. Third, small firms are more volatile than large firms.

Suggested Citation

  • Claudia M. Buch & Jörg Döpke & Harald Strotmann, 2009. "Does Export Openness Increase Firm‐level Output Volatility?," The World Economy, Wiley Blackwell, vol. 32(4), pages 531-551, April.
  • Handle: RePEc:bla:worlde:v:32:y:2009:i:4:p:531-551
    DOI: 10.1111/j.1467-9701.2009.01168.x
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    References listed on IDEAS

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    2. Giorgio Barba Navaretti & Daniele Checchi & Alessandro Turrini, 2003. "Adjusting Labor Demand: Multinational Versus National Firms: A Cross-European Analysis," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 708-719, 04/05.
    3. Francesca Fabbri & Jonathan E. Haskel & Matthew J. Slaughter, 2003. "Does Nationality Of Ownership Matter For Labor Demands?," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 698-707, 04/05.
    4. Julian di Giovanni & Andrei A. Levchenko, 2009. "Trade Openness and Volatility," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 558-585, August.
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    8. Matías Braun & Borja Larrain, 2005. "Finance and the Business Cycle: International, Inter‐Industry Evidence," Journal of Finance, American Finance Association, vol. 60(3), pages 1097-1128, June.
    9. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-434, November.
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