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Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis

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  • Assaf Razin
  • Andrew Rose

Abstract

This paper links business cycle volatility to barriers on international mobility of goods and capital. Theory predicts that capital market integration should lower consumption volatility while raising investment volatility, if most shocks are country-specific and transitory. The removal of barriers to trade in goods should enhance specialization and hence output volatility. We test these ideas using a unique panel data set which includes indicators of barriers to trade in both goods and capital flows. However, our empirical results indicate that neither the degree of capital mobility, nor the degree of goods mobility is strongly correlated with the volatility of consumption, investment or output. This may reflect the fact that many business cycle shocks are both persistent and common to many countries.

Suggested Citation

  • Assaf Razin & Andrew Rose, 1992. "Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis," NBER Working Papers 4208, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4208
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    1. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February.
    2. Pritchett, Lant, 1991. "Measuring outward orientation in developing countries : can it be done?," Policy Research Working Paper Series 566, The World Bank.
    3. Leiderman, Leonardo & Razin, Assaf, 1991. "Determinants of external imbalances: The role of taxes, government spending, and productivity," Journal of the Japanese and International Economies, Elsevier, vol. 5(4), pages 421-450, December.
    4. Jacob A. Frenkel & Assaf Razin, 1987. "The Mundell-Flemming Model: A Quarter Century Later," NBER Working Papers 2321, National Bureau of Economic Research, Inc.
    5. Robert Summers & Alan Heston, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 327-368.
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