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This paper studies the effect of trade openness on output volatility.We find that trade openness generally increased output volatility, althoughthis effect was stronger and more significant during 1950-1975 than during1975-2000. However, if we split the sample into developed and developingcountries, we observe that more openness increased volatility in developingcountries, while it helped smooth output in developed countries. We alsofind that the size of the government may have increased volatility in lessdeveloped countries. Part of the positive relation between openness andvolatility may be explained by the positive relation between openness andgovernment size. Another important finding of this paper is that oncewe control for government size and some measures of external risk, suchas terms of trade volatility and export concentration index, the effect ofopenness on the output volatility turns out to be negative.

Item Type: MPRA Paper -

Institution: ITAM Instituto Tecnologico Autonomo de Mexico-

Original Title: Trade Openness and Output Volatility-

Language: English-

Keywords: Trade; Openness; Volatility-

Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - GeneralF - International Economics > F0 - General > F01 - Global OutlookN - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N10 - General, International, or Comparative-

Author: Bejan, Maria


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