Latent Trade Diversification and Its Relevance for Macroeconomic Stability
Traditional measures of trade diversification only take into account contemporaneous export baskets. These measures fail to capture a country’s ability to respond to shocks by allocating factors of production into activities for which it has alread...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2015
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| Online Access: | http://documents.worldbank.org/curated/en/2015/06/24688492/latent-trade-diversification-relevance-macroeconomic-stability http://hdl.handle.net/10986/22213 |
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okr-10986-22213 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
OUTPUT VOLATILITY EXPORT MARKETS MAXIMUM LIKELIHOOD METHOD ECONOMIC GROWTH SIGNIFICANT EFFECT WORLD TRADE ORGANIZATION PRODUCTION VARIABLE COSTS TRADE STRUCTURE INCOME ANNUAL GROWTH RATE TRADE BARRIERS REAL GDP GDP PER CAPITA LABOR FORCE EXPORTS DEVELOPING COUNTRIES POLITICAL ECONOMY WELFARE DISTRIBUTION POINT ESTIMATES VARIABLES TRADE REFORMS ESTIMATION RESULTS TRADE OPENNESS ANNUAL GROWTH BENCHMARKS PAYMENTS INTERNATIONAL TRANSACTIONS FACTOR ENDOWMENTS ECONOMIC STRUCTURES TRENDS DEVELOPMENT ECONOMIC ACTIVITY MACROECONOMIC STABILITY STANDARD DEVIATION INFLUENCE EMPIRICAL RESULTS TOTAL FACTOR PRODUCTIVITY COSTS NEGATIVE IMPACT INTERNATIONAL TRADE IN SERVICES INCOME GROWTH DATA QUALITY FIXED COSTS RELATIVE IMPORTANCE IMPORT SUBSTITUTION NET EXPORTS WTO PER CAPITA GROWTH EXPLANATORY VARIABLES SIGNIFICANT IMPACT ECONOMIC SIZE INCOME LEVELS INTERNATIONAL ECONOMICS IMPORTS ECONOMIC REFORMS RELATIVE PRICES EXPORT DIVERSIFICATION NATURAL RESOURCES EXPORT SPECIALIZATION ECONOMIC REFORM DATA AVAILABILITY TRADE IN SERVICES VALUE ADDED COUNTRY LEVEL CUMULATIVE DISTRIBUTION INTERNATIONAL TRADE COUNTRY SIZE EXTERNAL CONDITIONS FINANCIAL CRISIS AGRICULTURAL EXPORTS VALUE DEPENDENT VARIABLE POLICY MAKERS EXPORT BASKETS PRODUCTION FUNCTIONS IMPORT VALUES COMPARATIVE ADVANTAGES POOR COUNTRIES EXPORT PRODUCTS DEVELOPING WORLD DYNAMIC PANEL INCOME DISTRIBUTION KNOWLEDGE ECONOMY AGRICULTURE ESTIMATED COEFFICIENTS ERROR TERM MEASUREMENT TRADE REGIMES TRADE LIBERALIZATION ECONOMICS DIVERSIFICATION TERMS OF TRADE SECTORAL COMPOSITION FIXED EFFECTS TRADE DATA ECONOMIC DEVELOPMENT TRADE EMPIRICAL REGULARITIES GDP GOODS THEORY GLOBAL TRADE GROWTH RATE BILATERAL TRADE COMPARATIVE ADVANTAGE PRIMARY PRODUCTS TRADE DIVERSIFICATION COUNTRY CHARACTERISTICS GINI COEFFICIENT EXTERNAL SHOCKS EXPORT BASKET WORLD TRADE POLICY RESEARCH HIGH GROWTH EXCHANGE RATE DEVELOPMENT INDICATORS OUTSOURCING PRICES FINANCIAL DEPTH DEVELOPMENT POLICY INEQUALITY FUTURE RESEARCH GROWTH |
| spellingShingle |
OUTPUT VOLATILITY EXPORT MARKETS MAXIMUM LIKELIHOOD METHOD ECONOMIC GROWTH SIGNIFICANT EFFECT WORLD TRADE ORGANIZATION PRODUCTION VARIABLE COSTS TRADE STRUCTURE INCOME ANNUAL GROWTH RATE TRADE BARRIERS REAL GDP GDP PER CAPITA LABOR FORCE EXPORTS DEVELOPING COUNTRIES POLITICAL ECONOMY WELFARE DISTRIBUTION POINT ESTIMATES VARIABLES TRADE REFORMS ESTIMATION RESULTS TRADE OPENNESS ANNUAL GROWTH BENCHMARKS PAYMENTS INTERNATIONAL TRANSACTIONS FACTOR ENDOWMENTS ECONOMIC STRUCTURES TRENDS DEVELOPMENT ECONOMIC ACTIVITY MACROECONOMIC STABILITY STANDARD DEVIATION INFLUENCE EMPIRICAL RESULTS TOTAL FACTOR PRODUCTIVITY COSTS NEGATIVE IMPACT INTERNATIONAL TRADE IN SERVICES INCOME GROWTH DATA QUALITY FIXED COSTS RELATIVE IMPORTANCE IMPORT SUBSTITUTION NET EXPORTS WTO PER CAPITA GROWTH EXPLANATORY VARIABLES SIGNIFICANT IMPACT ECONOMIC SIZE INCOME LEVELS INTERNATIONAL ECONOMICS IMPORTS ECONOMIC REFORMS RELATIVE PRICES EXPORT DIVERSIFICATION NATURAL RESOURCES EXPORT SPECIALIZATION ECONOMIC REFORM DATA AVAILABILITY TRADE IN SERVICES VALUE ADDED COUNTRY LEVEL CUMULATIVE DISTRIBUTION INTERNATIONAL TRADE COUNTRY SIZE EXTERNAL CONDITIONS FINANCIAL CRISIS AGRICULTURAL EXPORTS VALUE DEPENDENT VARIABLE POLICY MAKERS EXPORT BASKETS PRODUCTION FUNCTIONS IMPORT VALUES COMPARATIVE ADVANTAGES POOR COUNTRIES EXPORT PRODUCTS DEVELOPING WORLD DYNAMIC PANEL INCOME DISTRIBUTION KNOWLEDGE ECONOMY AGRICULTURE ESTIMATED COEFFICIENTS ERROR TERM MEASUREMENT TRADE REGIMES TRADE LIBERALIZATION ECONOMICS DIVERSIFICATION TERMS OF TRADE SECTORAL COMPOSITION FIXED EFFECTS TRADE DATA ECONOMIC DEVELOPMENT TRADE EMPIRICAL REGULARITIES GDP GOODS THEORY GLOBAL TRADE GROWTH RATE BILATERAL TRADE COMPARATIVE ADVANTAGE PRIMARY PRODUCTS TRADE DIVERSIFICATION COUNTRY CHARACTERISTICS GINI COEFFICIENT EXTERNAL SHOCKS EXPORT BASKET WORLD TRADE POLICY RESEARCH HIGH GROWTH EXCHANGE RATE DEVELOPMENT INDICATORS OUTSOURCING PRICES FINANCIAL DEPTH DEVELOPMENT POLICY INEQUALITY FUTURE RESEARCH GROWTH Lederman, Daniel Pienknagura, Samuel Rojas, Diego Latent Trade Diversification and Its Relevance for Macroeconomic Stability |
| geographic_facet |
Latin America & Caribbean |
| relation |
Policy Research Working Paper;No. 7332 |
| description |
Traditional measures of trade
diversification only take into account contemporaneous
export baskets. These measures fail to capture a country’s
ability to respond to shocks by allocating factors of
production into activities for which it has already paid the
fixed costs associated with exporting. This paper corrects
for the shortcoming of traditional measures of
diversification by introducing a novel measure of trade
diversification—latent diversification—and proposes a proxy
to measure latent diversification, which is calculated by
taking into account the entire history of a country’s
exports. The paper shows that the observed gaps between
traditional measures of diversification and the proposed
proxy of latent diversification are sizeable; countries hold
latent export baskets that are, on average, three times as
large as their average contemporaneous export basket, and
these gaps are largest for poor and small countries.
Moreover, latent diversification is an important determinant
of volatility—more diversified latent export baskets are
associated with lower terms of trade volatility and,
subsequently, lower GDP per capita volatility, even after
controlling for the degree of contemporaneous export
diversification and other trade and country characteristics.
The latter result, together with the disproportionately
large latent baskets relative to contemporaneous baskets
observed in poor and small countries, suggests that latent
diversification is an important vehicle toward stability in
countries that face barriers in building diversified
contemporaneous export baskets. |
| format |
Working Paper |
| author |
Lederman, Daniel Pienknagura, Samuel Rojas, Diego |
| author_facet |
Lederman, Daniel Pienknagura, Samuel Rojas, Diego |
| author_sort |
Lederman, Daniel |
| title |
Latent Trade Diversification and Its Relevance for Macroeconomic Stability |
| title_short |
Latent Trade Diversification and Its Relevance for Macroeconomic Stability |
| title_full |
Latent Trade Diversification and Its Relevance for Macroeconomic Stability |
| title_fullStr |
Latent Trade Diversification and Its Relevance for Macroeconomic Stability |
| title_full_unstemmed |
Latent Trade Diversification and Its Relevance for Macroeconomic Stability |
| title_sort |
latent trade diversification and its relevance for macroeconomic stability |
| publisher |
World Bank, Washington, DC |
| publishDate |
2015 |
| url |
http://documents.worldbank.org/curated/en/2015/06/24688492/latent-trade-diversification-relevance-macroeconomic-stability http://hdl.handle.net/10986/22213 |
| _version_ |
1764450439567245312 |
| spelling |
okr-10986-222132021-04-23T14:04:07Z Latent Trade Diversification and Its Relevance for Macroeconomic Stability Lederman, Daniel Pienknagura, Samuel Rojas, Diego OUTPUT VOLATILITY EXPORT MARKETS MAXIMUM LIKELIHOOD METHOD ECONOMIC GROWTH SIGNIFICANT EFFECT WORLD TRADE ORGANIZATION PRODUCTION VARIABLE COSTS TRADE STRUCTURE INCOME ANNUAL GROWTH RATE TRADE BARRIERS REAL GDP GDP PER CAPITA LABOR FORCE EXPORTS DEVELOPING COUNTRIES POLITICAL ECONOMY WELFARE DISTRIBUTION POINT ESTIMATES VARIABLES TRADE REFORMS ESTIMATION RESULTS TRADE OPENNESS ANNUAL GROWTH BENCHMARKS PAYMENTS INTERNATIONAL TRANSACTIONS FACTOR ENDOWMENTS ECONOMIC STRUCTURES TRENDS DEVELOPMENT ECONOMIC ACTIVITY MACROECONOMIC STABILITY STANDARD DEVIATION INFLUENCE EMPIRICAL RESULTS TOTAL FACTOR PRODUCTIVITY COSTS NEGATIVE IMPACT INTERNATIONAL TRADE IN SERVICES INCOME GROWTH DATA QUALITY FIXED COSTS RELATIVE IMPORTANCE IMPORT SUBSTITUTION NET EXPORTS WTO PER CAPITA GROWTH EXPLANATORY VARIABLES SIGNIFICANT IMPACT ECONOMIC SIZE INCOME LEVELS INTERNATIONAL ECONOMICS IMPORTS ECONOMIC REFORMS RELATIVE PRICES EXPORT DIVERSIFICATION NATURAL RESOURCES EXPORT SPECIALIZATION ECONOMIC REFORM DATA AVAILABILITY TRADE IN SERVICES VALUE ADDED COUNTRY LEVEL CUMULATIVE DISTRIBUTION INTERNATIONAL TRADE COUNTRY SIZE EXTERNAL CONDITIONS FINANCIAL CRISIS AGRICULTURAL EXPORTS VALUE DEPENDENT VARIABLE POLICY MAKERS EXPORT BASKETS PRODUCTION FUNCTIONS IMPORT VALUES COMPARATIVE ADVANTAGES POOR COUNTRIES EXPORT PRODUCTS DEVELOPING WORLD DYNAMIC PANEL INCOME DISTRIBUTION KNOWLEDGE ECONOMY AGRICULTURE ESTIMATED COEFFICIENTS ERROR TERM MEASUREMENT TRADE REGIMES TRADE LIBERALIZATION ECONOMICS DIVERSIFICATION TERMS OF TRADE SECTORAL COMPOSITION FIXED EFFECTS TRADE DATA ECONOMIC DEVELOPMENT TRADE EMPIRICAL REGULARITIES GDP GOODS THEORY GLOBAL TRADE GROWTH RATE BILATERAL TRADE COMPARATIVE ADVANTAGE PRIMARY PRODUCTS TRADE DIVERSIFICATION COUNTRY CHARACTERISTICS GINI COEFFICIENT EXTERNAL SHOCKS EXPORT BASKET WORLD TRADE POLICY RESEARCH HIGH GROWTH EXCHANGE RATE DEVELOPMENT INDICATORS OUTSOURCING PRICES FINANCIAL DEPTH DEVELOPMENT POLICY INEQUALITY FUTURE RESEARCH GROWTH Traditional measures of trade diversification only take into account contemporaneous export baskets. These measures fail to capture a country’s ability to respond to shocks by allocating factors of production into activities for which it has already paid the fixed costs associated with exporting. This paper corrects for the shortcoming of traditional measures of diversification by introducing a novel measure of trade diversification—latent diversification—and proposes a proxy to measure latent diversification, which is calculated by taking into account the entire history of a country’s exports. The paper shows that the observed gaps between traditional measures of diversification and the proposed proxy of latent diversification are sizeable; countries hold latent export baskets that are, on average, three times as large as their average contemporaneous export basket, and these gaps are largest for poor and small countries. Moreover, latent diversification is an important determinant of volatility—more diversified latent export baskets are associated with lower terms of trade volatility and, subsequently, lower GDP per capita volatility, even after controlling for the degree of contemporaneous export diversification and other trade and country characteristics. The latter result, together with the disproportionately large latent baskets relative to contemporaneous baskets observed in poor and small countries, suggests that latent diversification is an important vehicle toward stability in countries that face barriers in building diversified contemporaneous export baskets. 2015-07-17T18:29:27Z 2015-07-17T18:29:27Z 2015-06 Working Paper http://documents.worldbank.org/curated/en/2015/06/24688492/latent-trade-diversification-relevance-macroeconomic-stability http://hdl.handle.net/10986/22213 English en_US Policy Research Working Paper;No. 7332 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean |