Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/265212 
Year of Publication: 
2022
Series/Report no.: 
School of Economics Discussion Papers No. 2202
Publisher: 
University of Kent, School of Economics, Canterbury
Abstract: 
We analyze how trade affects aggregate volatility using a multi-country, multiindustry, and multi-destination framework. We decompose aggregate output growth risk into destination risk, origin risk, and idiosyncratic risk (and their covariances). We then use this framework to run counterfactuals changing the degree of destination market diversification (including home) and industry specialization. Using data on 19 industrial sectors, 34 countries, and 85 destination markets for the 1980-2011 period, we find that destination risk dominates, followed by idiosyncratic risk. From the counterfactuals, we find that the effect of increased destination market diversification is quantitatively important in reducing aggregate volatility for high volatility countries. On the other hand, reducing specialization increases volatility.
Subjects: 
Output Volatility
Destination Shocks
Origin Shocks
Trade Diversification
Specialization
JEL: 
F15
F44
F61
Document Type: 
Working Paper

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