Business Intelligence

Openness And Growth Volatility

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Executive Summary

Macroeconomic volatility is the outcome of countries' exposure to shocks (the magnitude and frequency of shocks that hit their economies) and their vulnerability (the ability to respond to these shocks). This paper conjectures that countries with higher degrees of trade and financial integration are better prepared to withstand shocks to output growth. Theoretically, the impact of trade and financial openness is ambiguous. Hence, the problem becomes an empirical one. Using a sample of 82 countries for the period 1975-2005, the authors find that the response of growth volatility to rising trade and financial openness depends upon some country characteristics.

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