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Diversification through trade

Caselli, Francesco, Koren, Miklos, Lisicky, Milan and Tenreyro, Silvana (2019) Diversification through trade. Quarterly Journal of Economics. ISSN 0033-5533

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Identification Number: 10.1093/qje/qjz028

Abstract

A widely held view is that openness to international trade leads to higher income volatility, as trade increases specialization and hence exposure to sector-speciÖc shocks. Contrary to this common wisdom, we argue that when country-wide shocks are impor- tant, openness to international trade can lower income volatility by reducing exposure to domestic shocks, and allowing countries to diversify the sources of demand and sup- ply across countries. Using a quantitative model of trade, we assess the importance of the two mechanisms (sectoral specialization and cross-country diversiÖcation) and show that in recent decades international trade has reduced economic volatility for most countries

Item Type: Article
Official URL: https://academic.oup.com/qje
Additional Information: © 2019 Oxford University Press
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
Date Deposited: 13 Sep 2019 16:09
Last Modified: 11 Oct 2019 23:11
URI: http://eprints.lse.ac.uk/id/eprint/101615

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