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Comparative Advantage, Complexity, and Volatility

Author

Listed:
  • Pravin Krishna

    (Johns Hopkins University and NBER)

  • Andrei A. Levchenko

    (University of Michigan and NBER)

Abstract

Less developed countries tend to experience higher output volatility, a fact that is in part explained by their specialization in more volatile sectors. This paper proposes theoretical explanations for this pattern of specialization -- with the complexity of the goods playing a central role. Speci cally, less developed countries with lower institutional ability to enforce contracts, or alternately, with low levels of human capital will specialize in less complex goods which are also characterized by higher levels of output volatility. We provide novel empirical evidence that less complex industries are indeed more volatile.

Suggested Citation

  • Pravin Krishna & Andrei A. Levchenko, 2012. "Comparative Advantage, Complexity, and Volatility," Working Papers 632, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:632
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    File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r632.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Product Complexity; Comparative Advantage; Volatility;
    All these keywords.

    JEL classification:

    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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