Trade Openness and Volatility

Author/Editor:

Andrei A Levchenko ; Julian Di Giovanni

Publication Date:

June 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the mechanisms through which output volatility is related to trade openness using an industry-level panel dataset of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade is accompanied by increased specialization. Third, sectors that are more open are less correlated with the rest of the economy. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the relationship between trade openness and overall volatility is positive and economically significant.

Series:

Working Paper No. 2008/146

Subject:

Gravity models Manufacturing Production growth Public expenditure review Trade balance

English

Publication Date:

June 1, 2008

ISBN/ISSN:

9781451870046/1018-5941

Stock No:

WPIEA2008146

Pages:

60

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