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dc.contributor.authorCavallo, Eduardo A.en_US
dc.date.accessioned2010-02-23en_US
dc.date.accessioned2011-11-18T11:47:54Z-
dc.date.available2011-11-18T11:47:54Z-
dc.date.issued2007en_US
dc.identifier.urihttp://hdl.handle.net/10419/51464-
dc.description.abstractMany economists believe that, while openness to trade increases average GDP growth rates, it also raises output volatility by exposing countries to terms-oftrade shocks. This view does not take into account that, as suggested by a recent strand of the financial fragility literature, commercial trade might also reduce financially related volatility. Once this is taken into account, the relationship between exposure to trade and output volatility is still an open question. Trade therefore is not necessarily a destabilizing force in countries that are exposed to volatile capital flows. This paper presents new empirical evidence that suggests that the net effect of trade openness on output volatility is stabilizing. The methodology employed seeks to correct for the likely endogeneity of trade in this setting using gravity estimates as instrumental variables. The results confirm that exposure to trade raises output volatility through the terms-of-trade channel, as previously documented in the literature, but also shows that this is counteracted by a quantitatively larger stabilizing effect. Additional evidence is presented showing that the latter effect comes (at least in part) through the financial channel. Splitting the sample into countries that are more exposed to capital flows and countries that are less exposed, the paper shows that the stabilizing effect of commercial trade predominates in the first sub-sample.en_US
dc.language.isoengen_US
dc.publisherInter-American Development Bank, Research Dep. Washington, DCen_US
dc.relation.ispartofseriesWorking paper // Inter-American Development Bank, Research Department 604en_US
dc.subject.jelF36en_US
dc.subject.jelF40en_US
dc.subject.ddc330en_US
dc.subject.keywordopenness to tradeen_US
dc.subject.keywordoutput volatilityen_US
dc.subject.keywordfinancial crisesen_US
dc.subject.keywordgravity equationen_US
dc.subject.stwWirtschaftswachstumen_US
dc.subject.stwAu├čenhandelsliberalisierungen_US
dc.subject.stwTerms of Tradeen_US
dc.subject.stwSchocken_US
dc.subject.stwGravitationsmodellen_US
dc.subject.stwTheorieen_US
dc.subject.stwWelten_US
dc.titleOutput volatility and openness to trade: A reassessmenten_US
dc.typeWorking Paperen_US
dc.identifier.ppn585536937en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
Appears in Collections:Research Department Working Papers, Inter-American Development Bank

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