Do countries benefit from trade liberalization?
| Author | Phil McCalman/M.K. Tang |
| Position | IMF Research Department |
| Pages | 129-137 |
Page 129
Participants at an April 13 IMF research conference on trade argued that the costs of greater openness were small compared with the longterm efficiency gains and suggested that the benefits could be magnified through appropriate exchange rate and monetary policies. Participants also debated the advantages of joining the World Trade Organization and explored the job performance of immigrants from different regions of the world to the United States.
Page 136
Trade policy, immigrants' labor market performance, and the benefits of trade liberalization were among the topics discussed at an April 13 conference on international trade sponsored by the Trade and Investment Division of the IMF's Research Department. The event, the third in a series, drew researchers from inside and outside the Fund and was designed to deepen participants' understanding of the patterns and economic implications of various international flows of goods and capital.
The conference led off with Andrei Levchenko (IMF) presenting "Openness, Volatility, and the Risk Content of Exports," a study he coauthored with Julian di Giovanni (IMF). Motivated by the observation that countries that are more open to trade experience higher volatility of output growth, they used an industry-level panel data set of manufacturing production and trade to analyze the mechanisms through which trade can affect the volatility of production.
Their findings indicated that sectors that trade more are more volatile and that trade leads to increased specialization. These two forces increase overall volatility.
Levchenko and di Giovanni also found that output in sectors that are more open to trade is less correlated with output in the rest of the economy, a factor that reduces aggregate volatility.
They showed that each of the three factors has an appreciable effect on aggregate volatility. When the three effects are combined, they imply that a one-standard-deviation change in trade openness is associated with an increase in aggregate volatility of about 15 percent of the mean volatility observed in the data. The authors used these results to provide estimates of the welfare cost of increased volatility under several sets of assumptions. Finally, they developed a summary measure of the riskiness of a...
To continue reading
Request your trial