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The Risk Content of Exports: A Portfolio View of International Trade

In: NBER International Seminar on Macroeconomics 2011

  • Julian di Giovanni
  • Andrei A. Levchenko

It has been suggested that countries whose exports are in especially risky sectors will experience higher output volatility. This paper develops a measure of the riskiness of a country's pattern of export specialization, and illustrates its features across countries and over time. The exercise reveals large cross-country differences in the risk content of exports. This measure is strongly correlated with the volatility of terms-of-trade, total exports, and output, but does not exhibit a close relationship to the level of income, overall trade openness, or other country characteristics. We then propose an explanation for what determines the risk content of exports, based on the theoretical literature exemplified by Turnovsky (1974). Countries with a comparative advantage in safe sectors or a strong enough comparative advantage in risky sectors will specialize, whereas countries whose comparative advantage in risky sectors is not too strong will diversify their export structure to insure against export income risk. We use both non-parametric and semiparametric techniques to demonstrate that these theoretical predictions are strongly supported by the data.

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This chapter was published in:
  • Jeffrey Frankel & Christopher Pissarides, 2012. "NBER International Seminar on Macroeconomics 2011," NBER Books, National Bureau of Economic Research, Inc, number fran11-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12492.
    Handle: RePEc:nbr:nberch:12492
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    Web page: http://www.nber.org
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