Trade Openness and Output Volatility

Maria Bejan

MPRA Paper from University Library of Munich, Germany

Abstract: This paper studies the effect of trade openness on output volatility. We find that trade openness generally increased output volatility, although this effect was stronger and more significant during 1950-1975 than during 1975-2000. However, if we split the sample into developed and developing countries, we observe that more openness increased volatility in developing countries, while it helped smooth output in developed countries. We also find that the size of the government may have increased volatility in less developed countries. Part of the positive relation between openness and volatility may be explained by the positive relation between openness and government size. Another important finding of this paper is that once we control for government size and some measures of external risk, such as terms of trade volatility and export concentration index, the effect of openness on the output volatility turns out to be negative.

Keywords: Trade; Openness; Volatility (search for similar items in EconPapers)
JEL-codes: F01 F40 N10 (search for similar items in EconPapers)
Date: 2006-02
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (56)

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