Diversification through trade

Francesco Caselli, Miklós Koren, Milan Lisicky and Silvana Tenreyro

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: A widely held view is that openness to international trade leads to higher income volatility, as trade increases specialization and hence exposure to sector-specific shocks. Contrary to this common wisdom, we argue that when country-wide shocks are important, openness to international trade can lower income 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 show that in recent decades international trade has reduced economic volatility for most countries.

Keywords: 313164; 240852 (search for similar items in EconPapers)
JEL-codes: E32 F41 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2020-02-01
New Economics Papers: this item is included in nep-cwa, nep-int, nep-isf, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published in Quarterly Journal of Economics, 1, February, 2020, 135(1), pp. 449 - 502. ISSN: 0033-5533

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http://eprints.lse.ac.uk/101615/ Open access version. (application/pdf)

Related works:
Journal Article: Diversification Through Trade (2020)
Working Paper: Diversification through Trade (2015)
Working Paper: Diversification through Trade (2015)
Working Paper: Diversification through Trade (2015)
Working Paper: Diversification through trade (2015)
Working Paper: Diversification through trade (2015)
Working Paper: Diversification through Trade (2015)
Working Paper: Diversification through Trade (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:101615

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