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Trade openness reduces growth volatility when countries are well diversified

  • Mona Haddad
  • Jamus Jerome Lim
  • Cosimo Pancaro
  • Christian Saborowski

This paper addresses the mechanisms by which trade openness affects growth volatility. Using a diverse set of export concentration measures, we present strong evidence pointing to an important role for export diversification in conditioning the effect of trade openness on growth volatility. Indeed, the effect of openness on volatility is shown to be negative for a significant proportion of countries with relatively diversified export baskets.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 46 (2013)
Issue (Month): 2 (May)
Pages: 765-790

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Handle: RePEc:cje:issued:v:46:y:2013:i:2:p:765-790
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  1. 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.
  2. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  3. Bejan, Maria, 2006. "Trade Openness and Output Volatility," MPRA Paper 2759, University Library of Munich, Germany.
  4. Maurice J.G. Bun & Frank Windmeijer, 2009. "The Weak Instrument Problem of the System GMM Estimator in Dynamic Panel Data Models," Tinbergen Institute Discussion Papers 09-086/4, Tinbergen Institute.
  5. 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.
  6. 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.
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