Growth and Risk: A View from International Trade

Pravin Krishna, Andrei Levchenko and William Maloney

No 9296, Policy Research Working Paper Series from The World Bank

Abstract: This paper studies the cross-country patterns of risky innovation and growth through the lens of international trade. It uses a simple theoretical framework of risky quality upgrading by firms under varying levels of financial development to derive two predictions. First, the mean rate of quality growth and the corresponding cross-sectional variance of quality growth in a country are positively correlated. Second, both the mean and variance of quality changes are positively correlated with the country's level of financial development. The paper tests these two hypotheses using data on disaggregated (Harmonized System 10- digit) bilateral exports to the United States. The patterns in the data are consistent with the theory. The mean and the variance of quality growth are strongly positively correlated with each other. Countries with greater financial depth are systematically characterized by higher mean and higher variance in the growth of product quality. The findings suggest a mean-variance trade-off in product quality improvements along the development path. Increases in financial depth do not imply lower variability of changes in the product space.

Keywords: International Trade and Trade Rules; Trade and Services; Legal Institutions of the Market Economy; Transport Services; Private Sector Development Law; Marketing; Private Sector Economics (search for similar items in EconPapers)
Date: 2020-06-23
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Growth and risk: A view from international trade (2023)
Working Paper: Growth and Risk: A View from International Trade (2023)
Working Paper: Growth and Risk: A View from International Trade (2023)
Working Paper: Growth and Risk: A View from International Trade (2023)
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