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Does Export Openness Increase Firm-level Output Volatility?

  • 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. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.

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Article provided by Wiley Blackwell in its journal World Economy.

Volume (Year): 32 (2009)
Issue (Month): 4 (04)
Pages: 531-551

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Handle: RePEc:bla:worlde:v:32:y:2009:i:4:p:531-551
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