Growth volatility and trade: Market diversification vs. production specialization

Adina Ardelean, Miguel Leon-Ledesma and Laura Puzzello

Journal of Economic Behavior & Organization, 2024, vol. 225, issue C, 252-271

Abstract: We analyze how trade affects aggregate volatility using a multi-country, multi-industry, and multi-destination framework. We decompose aggregate output growth risk into destination risk, origin risk, and idiosyncratic risk (and their covariances). We then use this framework to run counterfactuals changing the degree of destination-market diversification (including home) and industry specialization. Using data on 19 industrial sectors, 34 countries, and 84 destination markets for the 1980–2011 period, we find that destination risk dominates, followed by idiosyncratic risk. From the counterfactuals, we find that the effect of increased destination-market diversification is quantitatively important in reducing aggregate volatility for high volatility countries. On the other hand, reducing specialization increases volatility.

Keywords: Output volatility; Destination shocks; Origin shocks; Trade diversification; Specialization (search for similar items in EconPapers)
JEL-codes: F15 F44 F61 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268124002592
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Growth Volatility and Trade: Market Diversification vs. Production Specialization (2022)
Working Paper: Growth Volatility and Trade: Market Diversification vs. Production Specialization (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:225:y:2024:i:c:p:252-271

DOI: 10.1016/j.jebo.2024.07.001

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().