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Diversification through trade

Author

Listed:
  • Caselli, Francesco
  • Koren, Miklos
  • Lisicky, Milan
  • Tenreyroy, Silvana

Abstract

A widely held view is that openness to international trade leads to higher GDP volatility, as trade increases specialization and hence exposure to sector-speciÖc shocks. We revisit the common wisdom and argue that when country-wide shocks are important, openness to international trade can lower GDP volatility by reducing exposure to domestic shocks and allowing countries to diversify the sources of demand and supply across countries. Using a quantitative model of trade, we assess the importance of the two mechanisms (sectoral specialization and cross-country diversiÖcation) and provide a new answer to the question of whether and how international trade a§ects economic volatility.

Suggested Citation

  • Caselli, Francesco & Koren, Miklos & Lisicky, Milan & Tenreyroy, Silvana, 2015. "Diversification through trade," LSE Research Online Documents on Economics 86293, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:86293
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    File URL: http://eprints.lse.ac.uk/86293/
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:dyncon:v:88:y:2018:i:c:p:31-50 is not listed on IDEAS
    2. repec:oup:qjecon:v:132:y:2017:i:2:p:921-962. is not listed on IDEAS
    3. Javier Cravino & Andrei A. Levchenko, 2017. "Multinational Firms and International Business Cycle Transmission," The Quarterly Journal of Economics, Oxford University Press, vol. 132(2), pages 921-962.
    4. Baran Doda, Simon Quemin, Luca Taschini, 2017. "A theory of gains from trade in multilaterally linked ETSs," GRI Working Papers 275, Grantham Research Institute on Climate Change and the Environment.
    5. Stephen S. Poloz, 2016. "The Paul Storer Memorial Lecture—Cross-Border Trade Integration and Monetary Policy," Discussion Papers 16-20, Bank of Canada.
    6. repec:eee:eecrev:v:96:y:2017:i:c:p:18-37 is not listed on IDEAS
    7. 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.
    8. repec:eee:ecmode:v:72:y:2018:i:c:p:109-121 is not listed on IDEAS
    9. Doda, Baran & Taschini, Luca, 2017. "Carbon dating: when is it beneficial to link ETSs?," LSE Research Online Documents on Economics 68379, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    comparative statics; Product cycles; Terms of trade effect; Leapfrogging;

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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