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Diversification through trade

Caselli, Francesco, Koren, Miklos, Lisicky, Milan and Tenreyro, Silvana (2015) Diversification through trade. CEP Discussion Paper (1388). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

A widely held view is that openness to international trade leads to higher GDP volatility, as trade increases specialization and hence exposure to sector-specific shocks. We revisit the common wisdom and argue that when country-wide shocks are important, openness to international trade can lower GDP volatility by reducing exposure to domestic shocks and allowing countries to diversify the sources of demand and supply across countries. Using a quantitative model of trade, we assess the importance of the two mechanisms (sectoral specialization and cross-country diversification) and provide a new answer to the question of whether and how international trade affects economic volatility.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2015 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HF Commerce
JEL classification: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
F - International Economics > F0 - General
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 14 Jan 2016 16:52
Last Modified: 22 Aug 2019 23:27
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/65009

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