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Comparative Advantage, Complexity and Volatility

  • Pravin Krishna
  • Andrei A. Levchenko

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. Specifically, less developed countries with low levels of human capital, or alternately, with lower institutional ability to enforce contracts, 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.nber.org/papers/w14965.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14965.

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Date of creation: May 2009
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Publication status: published as Krishna, Pravin & Levchenko, Andrei A., 2013. "Comparative advantage, complexity, and volatility," Journal of Economic Behavior & Organization, Elsevier, vol. 94(C), pages 314-329.
Handle: RePEc:nbr:nberwo:14965
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  1. Costinot, Arnaud, 2007. "On the Origins of Comparative Advantage," University of California at San Diego, Economics Working Paper Series qt07g7g8h8, Department of Economics, UC San Diego.
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