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Trade openness reduces growth volatility when countries are well diversified
 
Author:Haddad, Mona E. ; Lim, Jamus Jerome; Saborowski, Christian; Collection Title:Policy Research working paper ; no. WPS 5222
Country:World; Date Stored:2010/02/26
Document Date:2010/02/01Document Type:Policy Research Working Paper
Language:EnglishRegion:The World Region
Report Number:WPS5222SubTopics:Achieving Shared Growth; Markets and Market Access; Emerging Markets; Free Trade; Economic Conditions and Volatility
Volume No:1 of 1  

Summary: 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.

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