Diversification through trade

Caselli, Francesco, Koren, Miklos, Lisicky, Milan and Tenreyroy, Silvana (2015) Diversification through trade. CFM discussion paper series (CFM-DP2015-18). Centre For Macroeconomics, 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-speciÖc 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 diversiÖcation) and provide a new answer to the question of whether and how international trade a§ects economic volatility.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information:	© 2015 The Authors
Divisions:	Centre for Macroeconomics
Subjects:	H Social Sciences > HB Economic Theory
Date Deposited:	14 Dec 2017 10:49
Last Modified:	15 Sep 2023 23:38
URI:	http://eprints.lse.ac.uk/id/eprint/86293

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