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Comparative advantage, complexity, and volatility

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  • Krishna, Pravin
  • Levchenko, Andrei A.

Abstract

Less developed countries tend to experience higher output volatility, a fact that is in part explained by their specialization in more volatile sectors. This paper proposes theoretical explanations for this pattern of specialization – with the complexity of the goods playing a central role. Specifically, less developed countries with lower institutional ability to enforce contracts, or alternately, with low levels of human capital will specialize in less complex goods which are also characterized by higher levels of output volatility. We provide novel empirical evidence that less complex industries are indeed more volatile.

Suggested Citation

  • Krishna, Pravin & Levchenko, Andrei A., 2013. "Comparative advantage, complexity, and volatility," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 314-329.
  • Handle: RePEc:eee:jeborg:v:94:y:2013:i:c:p:314-329
    DOI: 10.1016/j.jebo.2012.11.004
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    1. repec:eee:eecrev:v:102:y:2018:i:c:p:240-279 is not listed on IDEAS
    2. Fiorini, Matteo; Lebrand, Mathilde, 2016. "The Political Economy of Services Trade Agreements," Economics Working Papers ECO2016/05, European University Institute.
    3. Nitya Pandalai Nayar & Aaron Flaaen & Christoph Boehm, 2015. "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake," 2015 Meeting Papers 383, Society for Economic Dynamics.
    4. Kim, Dong-Hyeon & Lin, Shu-Chin & Suen, Yu-Bo, 2016. "Trade, growth and growth volatility: New panel evidence," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 384-399.
    5. Sean Dougherty & Verónica C. Frisancho Robles & Kala Krishna, 2011. "Employment Protection Legislation and Plant-Level Productivity in India," NBER Working Papers 17693, National Bureau of Economic Research, Inc.
    6. Kurz, Christopher & Senses, Mine Z., 2016. "Importing, exporting, and firm-level employment volatility," Journal of International Economics, Elsevier, vol. 98(C), pages 160-175.
    7. Teixeira, Aurora A.C. & Queirós, Anabela S.S., 2016. "Economic growth, human capital and structural change: A dynamic panel data analysis," Research Policy, Elsevier, vol. 45(8), pages 1636-1648.
    8. Montalbano, Pierluigi, 2011. "Trade Openness and Developing Countries' Vulnerability: Concepts, Misconceptions, and Directions for Research," World Development, Elsevier, vol. 39(9), pages 1489-1502, September.
    9. Daniela MAGGIONI & Alessia LO TURCO & Mauro GALLEGATI, 2014. "Does export complexity matter for firms' output volatility?," Working Papers 407, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    10. Alessia Lo Turco & Daniela Maggioni, 2016. "On tariff changes and firm-production evolution: insights from Turkish manufacturing," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(2), pages 131-164, March.
    11. Antonio Ciccone & Elias Papaioannou, 2016. "Estimating Cross-Industry Cross-Country Interaction Models Using Benchmark Industry Characteristics," NBER Working Papers 22368, National Bureau of Economic Research, Inc.
    12. Emiliano Magrini & Pierluigi Montalbano, 2012. "Trade openness and vulnerability to poverty: Vietnam in the long-run (1992-2008)," Working Paper Series 3512, Department of Economics, University of Sussex Business School.
    13. Chang, Pao-Li & Lu, Chia-Hui, 2012. "Risk and the technology content of FDI: A dynamic model," Journal of International Economics, Elsevier, vol. 86(2), pages 306-317.
    14. Maggioni, Daniela & Lo Turco, Alessia & Gallegati, Mauro, 2016. "Does product complexity matter for firms' output volatility?," Journal of Development Economics, Elsevier, vol. 121(C), pages 94-109.
    15. Castellares, Renzo & Salas, Jorge, 2016. "Contractual Imperfections and the Impact of Crises on Trade: Evidence from Industry-Level Data," Working Papers 2016-001, Banco Central de Reserva del Perú.

    More about this item

    Keywords

    Product complexity; Comparative advantage; Volatility;

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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