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Diversification through Trade

Francesco Caselli, Miklós Koren, Milan Lisicky () and Silvana Tenreyro ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: A widely held view is that openness to international trade leads to higher GDP volatility, as trade increases specialization and hence exposure to sector-specific shocks. We revisit the common wisdom and argue that when country-wide shocks are important, openness to international trade can lower GDP volatility by reducing exposure to domestic shocks and allowing countries to diversify the sources of demand and supply across countries. Using a quantitative model of trade, we assess the importance of the two mechanisms (sectoral specialization and cross-country diversification) and provide a new answer to the question of whether and how international trade affects economic volatility.

Keywords: International trade; diversification; GDP (search for similar items in EconPapers)
JEL-codes: E32 F4 F41 F44 F6 F62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-edu, nep-hap, nep-hpe and nep-ltv
Date: 2015-08
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http://cep.lse.ac.uk/pubs/download/dp1388.pdf (application/pdf)

Related works:
Working Paper: Diversification through Trade (2015) Downloads
Working Paper: Diversification through Trade (2015) Downloads
Working Paper: Diversification through trade (2015) Downloads
Working Paper: Diversification through trade (2015) Downloads
Working Paper: Diversification through Trade (2015) Downloads
Working Paper: Diversification through Trade (2012) Downloads
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