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Trade openness reduces growth volatility when countries are well diversified

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

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. JEL Classification: F15, F43, O24

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Paper provided by European Central Bank in its series Working Paper Series with number 1491.

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Date of creation: Nov 2012
Date of revision:
Handle: RePEc:ecb:ecbwps:20121491
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  1. 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.
  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. Andrei A. Levchenko & Julian di Giovanni, 2008. "Trade Openness and Volatility," IMF Working Papers 08/146, International Monetary Fund.
  4. 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.
  5. Bejan, Maria, 2006. "Trade Openness and Output Volatility," MPRA Paper 2759, University Library of Munich, Germany.
  6. Raddatz, Claudio, 2005. "Are external shocks responsible for the instability of output in low income countries?," Policy Research Working Paper Series 3680, The World Bank.
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