2015/08/01 by Francesco Caselli, Miklós Koren, Milan Lisicky +1 · 2 citations
Economics, Econometrics and Finance · #Global trade and economics #Global Financial Crisis and Policies #Monetary Policy and Economic Impact
paper · doi:10.1093/qje/qjz028
openalex publication_date 2015/08/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/04
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.