Comparative Advantage, Complexity and Volatility

31 Pages Posted: 19 May 2009 Last revised: 21 May 2009

See all articles by Pravin Krishna

Pravin Krishna

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Andrei A. Levchenko

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

Date Written: May 2009

Abstract

Less developed countries tend to experience higher output volatility, a fact that is, in part, explained by their specialization in more volatile sectors. This paper proposes theoretical explanations for this pattern of specialization -- with the complexity of the goods playing a central role. Specifically, less developed countries with low levels of human capital, or alternately, with lower institutional ability to enforce contracts, will specialize in less complex goods which are also characterized by higher levels of output volatility. We provide novel empirical evidence that less complex industries are indeed more volatile.

Suggested Citation

Krishna, Pravin and Levchenko, Andrei A., Comparative Advantage, Complexity and Volatility (May 2009). NBER Working Paper No. w14965. Available at SSRN: https://ssrn.com/abstract=1405973

Pravin Krishna (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

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Washington, DC 20036-1984
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Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

National Bureau of Economic Research (NBER)

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Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

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Ann Arbor, MI 48109-1220
United States

HOME PAGE: http://alevchenko.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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