TY - JOUR
T1 - Growth volatility and trade
T2 - market diversification vs. production specialization
AU - Ardelean, Adina
AU - León-Ledesma, Miguel
AU - Puzzello, Laura
N1 - Publisher Copyright:
© 2024 The Author(s)
PY - 2024/9
Y1 - 2024/9
N2 - We analyze how trade affects aggregate volatility using a multi-country, multi-industry, 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 84 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.
AB - We analyze how trade affects aggregate volatility using a multi-country, multi-industry, 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 84 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.
KW - Destination shocks
KW - Origin shocks
KW - Output volatility
KW - Specialization
KW - Trade diversification
UR - http://www.scopus.com/inward/record.url?scp=85199380381&partnerID=8YFLogxK
U2 - 10.1016/j.jebo.2024.07.001
DO - 10.1016/j.jebo.2024.07.001
M3 - Article
AN - SCOPUS:85199380381
SN - 0167-2681
VL - 225
SP - 252
EP - 271
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
ER -