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The asymmetric impact of trade openness on output volatility

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Abstract

Studies show that the relationship between openness and output volatility is theoretically ambiguous, but most of these studies provide an empirical estimation for this relationship. This paper investigates the impact of trade openness on output volatility, and how this impact may be affected by the country’s level of development. We use a panel dataset for 33 countries for the years of 1980 through 2009. A standard deviation of quarterly real GDP over a 5-year span is used as the dependent variable. Controlling for the country and period-specific effects, the main results are as follows: trade openness increases the output volatility. And, the output volatility of countries with a higher level of development is less affected by trade openness.

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Notes

  1. See UNDP 2014 Human Development Report.

  2. \(\hbox {Log}(\hbox {RGDP}_{ it})=\hbox {Log}(\frac{\hbox {GDP}_{ it}}{\hbox {CPI}_{ it}})\), where \(\hbox {CPI}_{it}\) is the Consumer Price Index for country \(i\) in time \(t\).

  3. Total PPP Converted GDP, G-K method, at current prices (in millions $).

  4. Since \(t\) represents a period of 5 years and the openness is given by annual data, first, we take the logs of openness, and then, we calculate the average of logs over 5 years, that is, the average of the logs, not the log of the averages.

  5. Note that the interaction term here is a continuous variable.

References

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Authors and Affiliations

  1. Department of Economics, University of California, Riverside, 900 University Ave., Riverside, CA, 92521, USA

    Riyad Abubaker

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  1. Riyad Abubaker
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Correspondence to Riyad Abubaker.

Appendix

Appendix

See Tables 1, 2, 3 and 4.

Table 1 Countries in the sample and the average Human Development Index HDI
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Table 2 Data Sources, 1980–2009
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Table 3 Least-squares baseline regression
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Table 4 Least-squares regression including the level of development
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Abubaker, R. The asymmetric impact of trade openness on output volatility. Empir Econ 49, 881–887 (2015). https://doi.org/10.1007/s00181-014-0899-2

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  • DOI: https://doi.org/10.1007/s00181-014-0899-2

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