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Managing Openness and Volatility : The Role of Export Diversification

Author

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  • Mona Haddad
  • Jamus Jerome Lim
  • Christian Saborowski

Abstract

As developing countries look to embrace an outward-oriented growth strategy, some may be concerned about the possibility that increased openness will be accompanied by increased volatility. However, although a more open economy may face increased volatility in its terms of trade, openness confers diversification benefits. In this note, we argue that export diversification is a key mitigating factor for the total effect of openness on volatility. More specifically, we show that most developing countries fall on the “good” side of a diversification threshold, where they are likely to experience less volatility as they pursue a strategy of greater openness.
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Suggested Citation

  • Mona Haddad & Jamus Jerome Lim & Christian Saborowski, 2010. "Managing Openness and Volatility : The Role of Export Diversification," World Bank Other Operational Studies 10203, The World Bank.
  • Handle: RePEc:wbk:wboper:10203
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    Cited by:

    1. Farole, Thomas & Reis, Jose Guilherme & Wagle, Swarnim, 2010. "Analyzing trade competitiveness : a diagnostics approach," Policy Research Working Paper Series 5329, The World Bank.
    2. Canuto, Otaviano & Sharma, Manu, 2011. "Asia and South America: A Quasi-Common Economy Approach," World Bank - Economic Premise, The World Bank, issue 65, pages 1-7, September.

    More about this item

    Keywords

    Macroeconomics and Economic Growth - Economic Conditions and Volatility International Economics and Trade - Free Trade Private Sector Development - Emerging Markets Macroeconomics and Economic Growth - Markets and Market Access Poverty Reduction - Achieving Shared Growth;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • F1 - International Economics - - Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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