Trade Openness and Volatility

di Giovanni, Julian; Levchenko, Andrei A.

Trade Openness and Volatility

62 Pages Posted: 1 Jul 2008

Julian di Giovanni

Federal Reserve Banks - Federal Reserve Bank of New York; Universitat Pompeu Fabra - Department of Economics and Business; Barcelona Graduate School of Economics (Barcelona GSE); CREI and Universitat Pompeu Fabra; Centre for Economic Policy Research (CEPR)

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

There are 2 versions of this paper

Date Written: June 2008

Abstract

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.

Keywords: Working Paper, International trade, Trade liberalization, Trade policy, Industrial production, Manufacturing sector

Suggested Citation: Suggested Citation

di Giovanni, Julian and Levchenko, Andrei A., Trade Openness and Volatility (June 2008). IMF Working Paper No. 08/146, Available at SSRN: https://ssrn.com/abstract=1154323