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Income volatility: whom you trade with matters

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  • Marion Jansen

    ()

  • Carolina Lennon

    ()

  • Roberta Piermartini

    ()

Abstract

Using a dataset of 165 countries over a period from 1971 to 2010, this paper studies how income volatility abroad affects income volatility at home. Relying on the Markowitz–Tobin definition of portfolio risk to international trade, we disentangle how volatility at home depends on volatility in individual trading partners and on the correlation among trading partners’ business cycles. As it has to be expected when entry new markets yields costs, we find that the correlation among trading partners’ business cycles matters more than the volatility of individual trading partners. These findings can provide useful guidance for export promotion strategies. Copyright Kiel Institute 2016

Suggested Citation

  • Marion Jansen & Carolina Lennon & Roberta Piermartini, 2016. "Income volatility: whom you trade with matters," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 127-146, February.
  • Handle: RePEc:spr:weltar:v:152:y:2016:i:1:p:127-146
    DOI: 10.1007/s10290-015-0238-5
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    References listed on IDEAS

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    More about this item

    Keywords

    Income volatility; Geographical export diversification; Openness; C23; F43; O19;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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