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Comparative Advantage, Complexity, and Volatility

Listed author(s):
  • Pravin Krishna

    (Johns Hopkins University and NBER)

  • Andrei A. Levchenko

    (University of Michigan and NBER)

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.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r632.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 632.

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Length: 39 pages
Date of creation: 25 Sep 2012
Handle: RePEc:mie:wpaper:632
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Web page: http://fordschool.umich.edu/rsie/
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  2. 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.
  3. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
  4. Aart Kraay & Jaume Ventura, 2007. "Comparative Advantage and the Cross-section of Business Cycles," Journal of the European Economic Association, MIT Press, vol. 5(6), pages 1300-1333, December.
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  12. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 243-287.
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  16. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
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