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Trade Openness and Volatility

  • Andrei A. Levchenko
  • Julian di Giovanni

This paper examines the mechanisms through which output volatility is related to trade openness using an industry-level panel dataset of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade is accompanied by increased specialization. Third, sectors that are more open are less correlated with the rest of the economy. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the relationship between trade openness and overall volatility is positive and economically significant.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/146.

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Length: 60
Date of creation: 01 Jun 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/146
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  1. Huiwen Lai & Daniel Trefler, 2002. "The Gains from Trade with Monopolistic Competition: Specification, Estimation, and Mis-Specification," NBER Working Papers 9169, National Bureau of Economic Research, Inc.
  2. Imbs, Jean, 2007. "Growth and volatility," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1848-1862, October.
  3. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  4. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
  5. Do, Quy-Toan & Levchenko, Andrei A., 2007. "Comparative advantage, demand for external finance, and financial development," Journal of Financial Economics, Elsevier, vol. 86(3), pages 796-834, December.
  6. Liliana Rojas-Suárez & Nancy Birdsall & Moisés Naím & Eduardo Lora & Estelle James & Enrique V. Iglesias & Michael Gavin & Richard H. Sabot & Nora Lustig & Juan Luis Londoño & René Cortázar & Carol Gr, 1998. "Beyond Tradeoffs: Market Reform and Equitable Growth in Latin America," IDB Publications (Books), Inter-American Development Bank, number 66098 edited by Nancy Birdsall & Richard H. Sabot & Carol Graham.
  7. Stephen G Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2005. "Assessing the Sources of Changes in the Volatility of Real Growth," RBA Annual Conference Volume, in: Christopher Kent & David Norman (ed.), The Changing Nature of the Business Cycle Reserve Bank of Australia.
  8. Xavier Gabaix, 2011. "The Granular Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 79(3), pages 733-772, 05.
  9. Diego Comin & Thomas Philippon, 2005. "The Rise in Firm-Level Volatility: Causes and Consequences," NBER Working Papers 11388, National Bureau of Economic Research, Inc.
  10. Baxter, Marianne & Kouparitsas, Michael A., 2005. "Determinants of business cycle comovement: a robust analysis," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 113-157, January.
  11. Bejan, Maria, 2006. "Trade Openness and Output Volatility," MPRA Paper 2759, University Library of Munich, Germany.
  12. Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
  13. Julian di Giovanni & Andrei A. Levchenko, 2012. "The Risk Content of Exports: A Portfolio View of International Trade," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 8(1), pages 97 - 151.
  14. Raddatz, Claudio, 2003. "Liquidity needs and vulnerability to financial udnerdevelopment," Policy Research Working Paper Series 3161, The World Bank.
  15. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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