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Trade openness reduces growth volatility when countries are well diversified

Authors


  • Lim is also affiliated with the Santa Cruz Institute for International Economics. We thank Jean Francois Arvis, Robert Blotevogel, Paul Brenton, Olivier Cadot, Phil Levy, Norman Loayza, Ben Shepherd, three anonymous referees, and participants at the 2010 World Bank Economists' Forum for helpful conversations and comments on this work, as well as Norman for generously sharing his data; however, we are solely responsible for any errors that remain. The findings, interpretations, and conclusions expressed in this article are entirely those of the authors. They do not necessarily represent the views of the ECB, IMF, and World Bank, its executive directors, or the countries they represent. Email: jlim@worldbank.org

Abstract

This paper addresses the mechanisms by which trade openness affects growth volatility. Using a diverse set of export concentration measures, we present strong evidence pointing to an important role for export diversification in conditioning the effect of trade openness on growth volatility. Indeed, the effect of openness on volatility is shown to be negative for a significant proportion of countries with relatively diversified export baskets.

Abstract

L'ouverture du commerce réduit la volatilité de la croissance quand les pays sont bien diversifiés. Ce texte examine les mécanismes par lesquels l'ouverture du commerce affecte la volatilité de la croissance. A l'aide de diverses mesures de concentration des exportations, on fait état de résultats robustes tendant à montrer le rôle important de la diversification des exportations dans le conditionnement de l'effet d'ouverture du commerce sur la stabilité de la croissance. On montre que l'ouverture a un effet négatif sur la volatilité de la croissance dans une proportion significative de pays qui ont des paniers d'exportations relativement diversifiés.

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