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Growth and Risk: A View from International Trade

Author

Listed:
  • Pravin Krishna
  • Andrei A. Levchenko
  • Lin Ma
  • William F. Maloney

Abstract

This paper studies the cross-country patterns of risky innovation and growth through the lens of international trade. We use a simple theoretical framework of risky quality upgrading by firms under varying levels of financial development to derive two predictions. First, the mean rate of quality growth and the corresponding cross-sectional variance of quality growth in a country are positively correlated. Second, both the mean and variance of quality changes are positively correlated with the country's level of financial development. We then test these two hypotheses using data on disaggregated (HS10) bilateral exports to the United States. The patterns in the data are consistent with the theory. The mean and the variance of quality growth are strongly positively correlated with each other. Countries with greater financial depth are systematically characterized by higher mean and higher variance in the growth of product quality. Our findings suggest a mean-variance trade-off in product quality improvements along the development path. Increases in financial depth do not imply lower variability of changes in the product space.

Suggested Citation

  • Pravin Krishna & Andrei A. Levchenko & Lin Ma & William F. Maloney, 2023. "Growth and Risk: A View from International Trade," NBER Working Papers 30915, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30915
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    Cited by:

    1. Gomes Orlando, 2024. "Economic Growth in the Age of Ubiquitous Threats: How Global Risks are Reshaping Growth Theory," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-15, January.
    2. Ana Paula Cusolito & Roberto N. Fattal Jaef & Fausto Andres Patino Pena & Singh,Akshat Vikram, 2024. "The Financial Premium and Real Cost of Bureaucrats in Businesses," Policy Research Working Paper Series 10929, The World Bank.
    3. Nam, Hyun-Jung & Batten, Jonathan A. & Ryu, Doojin, 2025. "Do institutional quality and trade openness enhance the role of financial openness in Eastern European financial development?," Global Finance Journal, Elsevier, vol. 64(C).
    4. Arti Grover & Somik V. Lall & William F. Maloney, 2022. "Place, Productivity, and Prosperity," World Bank Publications - Books, The World Bank Group, number 36843, April.
    5. Datta, Alotosh & Dey, Bikash Koli & Bhuniya, Shaktipada & Sangal, Isha & Mandal, Buddhadev & Sarkar, Mitali & Guchhait, Rekha & Sarkar, Biswajit & Ganguly, Baishakhi, 2025. "Adaptation of e-commerce retailing to enhance customer satisfaction within a dynamical system under transfer of risk," Journal of Retailing and Consumer Services, Elsevier, vol. 84(C).

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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