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This paper examines the mechanisms through which output volatility is related to trade openness using an industry-level panel dataset of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade is accompanied by increased specialization. Third, sectors that are more open are less correlated with the rest of the economy. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the relationship between trade openness and

The objective of this presentation is to test whether trade openness leads to economic volatility, keeping other relevant things constant. This theme has been investigated in various studies, as we shall show in the literature review. However this particular study place the analysis within the vulnerability/ resilience framework, proposed by Briguglio et al. (2009). One would expect that if a country depends highly on economic conditions in other countries, its economic situation will also be highly exposed to external shocks, possibly leading to GDP growth volatility in the country in question. Likewise, a high dependence on imports is likely to lead to a high degree of exposure to economic conditions in the rest of the world. There are other reasons why trade openness leads to GDP growth volatility - these will be discussed in the section on the literature on this matter. The hypothesis to be tested in this paper is that GDP growth volatility depends on trade openness, on economic governance and on political governance of a given economy, the latter variable possibly proxying GDP per capita (the stage of development) and social governance in the country concerned. The approach used to test this relationship is the regression method, using panel data. ; peer-reviewed

AbstractIn this paper, we explore the relationship between international trade openness and two major political distortions, political uncertainty, and political polarization. We consider two measures of trade openness, the trade expenditures and the number of trade partners, as well as their volatility. As political distortions and trade characteristics of the country are endogenously related, we instrument the political uncertainty by the standard deviation of the effective political leaders' ages of a country and the minimum age of the political leaders of a country's neighbors. We find that political uncertainty reduces the level of trade openness and increases the volatility of trade openness while political polarization negatively affects both the level and the volatility of trade openness. We propose a simple theoretical model that provides the intuition on the relationship between political distortions and trade openness.

Studies of hegemonic stability tend to specify periods when hegemony is present or absent in the world system. Periods in which hegemony is present are expected to exhibit openness for trade. Periods in which hegemony is absent should be associated with trade closure. Partially as a consequence of this nominal measurement strategy, scholars continue to be unsure whether hegemony & systemic leadership are linked to the openness of the world's trading system. We contend that analysts need to devote more attention to the sources of preponderance & less to its arbitrary presence or absence. Focusing on the US, 1870-1990, we first articulate a theory linking certain political-economic systemic leadership variables to trade openness, in terms of the directions, signs, & diffusion speed of the causal links. We then estimate Granger causality & distributed lag models to test our predictions empirically. The empirical results support our theoretical interpretation. The Granger causalities between world trade openness & the systemic leadership variables are found to be reciprocal, with the effects of systemic leadership on world trade openness working faster than those of world trade openness on the hegemon. World trade openness exerts a negative effect on systemic leadership, while systemic leadership promotes world trade openness. 2 Tables, 1 Figure, 109 References. Adapted from the source document.

The paper tests and confirms the hypothesis that trade openness tends to generate GDP growth volatility, and that such growth volatility is mitigated by good economic and political governance. This may explain why some economies do not exhibit a high degree of GDP growth volatility even though they are highly-open. The main implication of these results is that countries that are highly dependent on international trade, including most small states, would be exposed to GDP growth volatility, which has various downsides, as explained in the literature review. However, it does not necessary follow that highly trade-open economies -small states in particular - are the ones that experience the highest degree of GDP growth volatility, if these countries adopt appropriate policies to attenuate the effect of openness on volatility. ; peer-reviewed

This paper analyzes the relationship between bilateral trade flows, trade openness, and asset holdings in a three-country stochastic general equilibrium model. The threecountry model set-up enables me to disentangle and separate the effects bilateral trade flows and trade openness have on bilateral portfolio patterns. I find that both factors independently influence bilateral asset holdings. Higher bilateral trade as well as higher trade openness lead to a higher bilateral foreign asset position. Furthermore, the two factors show an interaction effect, where increasing trade openness diminishes the influence of bilateral trade flows on asset holdings. I provide supporting empirical evidence for these theoretical findings using a data set on the geographical composition of international portfolio holdings.