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Diversification through trade

Francesco Caselli, Miklós Koren, Milan Lisicky and Silvana Tenreyroy

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 GDP volatility, as trade increases specialization and hence exposure to sector-speciÖc 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 diversiÖcation) and provide a new answer to the question of whether and how international trade a§ects economic volatility.

Keywords: comparative statics; Product cycles; Terms of trade effect; Leapfrogging (search for similar items in EconPapers)
JEL-codes: J1 (search for similar items in EconPapers)
Date: 2015-07
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http://eprints.lse.ac.uk/86293/ Open access version. (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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