Trade Openness Reduces Volatility When Countries Are Well Diversied

This paper addresses the mechanisms by which trade openness affects growth volatility. Using a diverse set of export diversification indicators, it presents strong evidence pointing to an important role for export diversification in reducing the effect of trade openness on growth volatility. The authors also identify positive thresholds for product diversification at which the effect of openness on volatility changes sign. The effect is shown to be positive only for a minority of countries with highly concentrated export baskets. This result is shown to be robust to both explicit accounting for endogeneity as well as the inclusion of a host of additional controls.

Bibliographic Details

Main Authors:	Haddad, Mona E., Lim, Jamus Jerome, Saborowski, Christian
Language:	English
Published:	2010-02-01
Subjects:	AGGREGATE LEVEL, AMERICAN ECONOMIC REVIEW, APPLIED RESEARCH, AVERAGE GROWTH, AVERAGE GROWTH RATE, AVERAGE LEVEL, BANKING CRISIS, BARRIERS TO ENTRY, BOND, BUSINESS CYCLE, CAPITA GROWTH, CAPITAL FLOW, CAPITAL FLOWS, CIVIL LIBERTIES, CLOSED ECONOMIES, COMMODITY, COMMODITY PRICE, COMPETITIVE ADVANTAGE, COMPLEMENTARITIES, COMPLEMENTARITY, CROSS-BORDER TRANSACTIONS, DEPENDENT VARIABLE, DESCRIPTIVE STATISTICS, DEVELOPED WORLD, DEVELOPING COUNTRIES, DEVELOPING ECONOMIES, DEVELOPING WORLD, DEVELOPMENT ECONOMICS, DOMESTIC MARKET, DOMESTIC PRODUCERS, DYNAMIC PANEL, ECONOMIC ACTIVITY, ECONOMIC CRISIS, ECONOMIC DEVELOPMENT, ECONOMIC FLUCTUATIONS, ECONOMIC GROWTH, ECONOMIC MANAGEMENT, ECONOMIC POLICY, ECONOMIC REFORM, ECONOMIC STUDIES, ECONOMICS LETTERS, EFFECTS OF VOLATILITY, EMPIRICAL LITERATURE, EMPIRICAL MODEL, EMPLOYMENT EQUATIONS, ERROR TERM, ESTIMATION RESULTS, EXCHANGE RATE REGIMES, EXPENDITURE, EXPENDITURES, EXPLANATORY VARIABLES, EXPORT BASE, EXPORT DIVERSIFICATION, EXPORT GROWTH, EXPORT INCENTIVES, EXPORT PROMOTION, EXPORTERS, EXPORTS, EXPOSURE, EXTERNAL SHOCKS, EXTERNALITIES, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL MARKETS, FINANCIAL TRANSACTIONS, FIXED EFFECTS, FIXED EFFECTS ESTIMATOR, FLUCTUATIONS, FOREIGN INVESTMENT, GLOBAL ECONOMY, GLOBAL INTEGRATION, GLOBAL SHOCKS, GLOBAL TRADE, GLOBALIZATION, GOVERNMENT SPENDING, GROWTH EFFECT, GROWTH EFFECTS, GROWTH PROCESS, GROWTH RATE, GROWTH RATES, GROWTH VOLATILITY, HIGH GROWTH, HIGH INCOME, HIGH INCOME COUNTRIES, HIGHER VOLATILITY, HUMAN CAPITAL, IMPACT OF TRADE, INCOME GROWTH, INDEPENDENT VARIABLES, INDUSTRIAL POLICY, INDUSTRIALIZED COUNTRIES, INDUSTRIALIZED WORLD, INFLATION, INFLATION VOLATILITY, INSTRUMENTAL VARIABLE ESTIMATION, INSURANCE, INTERACTION TERM, INTERACTION TERMS, INTEREST RATES, INTERNATIONAL COMPETITION, INTERNATIONAL MARKETS, INTERNATIONAL MONETARY FUND, INTERNATIONAL TRADE, JOINT VENTURES, KNOWLEDGE SPILLOVERS, LAGGED DEPENDENT, LIBERALIZATION, LINK BETWEEN VOLATILITY, LONG RUN, LOW INCOME, LOW INCOME COUNTRIES, LOW-INCOME ECONOMIES, MACROECONOMIC FLUCTUATIONS, MACROECONOMIC VOLATILITY, MACROECONOMICS, MARKET DIVERSIFICATION, MARKET ENTRY, MEASURES OF VOLATILITY, MIDDLE INCOME, MIDDLE-INCOME ECONOMIES, NATURAL DISASTER, NATURAL DISASTERS, NATURAL RESOURCE, NEGATIVE SIGN, NEW MARKETS, NEW PRODUCTS, OPEN ECONOMIES, OPEN ECONOMY, OUTPUT, OUTPUT GROWTH, OUTPUT VOLATILITY, PATTERN OF TRADE, PER CAPITA GROWTH, POINT ESTIMATES, POLICY ANALYSIS, POLICY IMPLICATIONS, POLICY MAKERS, POLICY MEASURES, POLICY RESEARCH, POLICY VARIABLES, POLITICAL ECONOMY, PORTFOLIO, POVERTY REDUCTION, PRICE UNCERTAINTY, PRODUCT MARKET, PROPERTY RIGHTS, PUBLIC OFFICIALS, RATE OF GROWTH, REAL EFFECTIVE EXCHANGE RATE, REAL INTEREST RATES, RED TAPE, RELATIVE IMPORTANCE, REVIEW OF ECONOMICS, RISK SHARING, SERIAL CORRELATION, SIGNIFICANT IMPACT, SMALL ECONOMIES, SPECIALIZATION, STANDARD DEVIATION, STANDARD ERRORS, STARTUP, STRUCTURAL CHARACTERISTICS, SUBSTITUTE, SYSTEMIC BANKING CRISES, TAX, TAX INCENTIVES, TERMS OF TRADE, TRADE COSTS, TRADE FACILITATION, TRADE INTEGRATION, TRADE LIBERALIZATION, TRADE OPENNESS, TRADE POLICY, TRADE REFORM, TRADE SHOCKS, TRADE VOLUMES, VOLATILITY MEASURE, VOLATILITY MEASURES, WORLD ECONOMY, WORLD TRADE, WORLD TRADE ORGANIZATION,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100226112948 https://hdl.handle.net/10986/3709
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