The Structural Determinants of External Vulnerability

The authors examine empirically how domestic structural characteristics related to openness and product- and factor-market flexibility influence the impact that terms-of-trade shocks can have on aggregate output. For this purpose, they apply an econometric methodology based on semi-structural vector...

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Main Authors:	Loayza, Norman V., Raddatz, Claudio
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2012
Subjects:	ADVERSE SHOCKS AGGREGATE OUTPUT ASYMMETRIC SHOCKS AUTOREGRESSION BENCHMARK BUSINESS CYCLE CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL MOBILITY CAPITAL STOCK COUNTRY CHARACTERISTICS COUNTRY GROWTH PERFORMANCE COUNTRY SPECIFIC COUNTRY-BY-COUNTRY BASIS COVARIANCE MATRIX CROSS COUNTRY CROSS COUNTRY EVIDENCE CROSS-COUNTRY EVIDENCE CROSS-COUNTRY REGRESSION CUMULATIVE EFFECT CURRENT ACCOUNT DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DIFFERENTIAL IMPACT DISTRIBUTED LAGS DOMESTIC CREDIT ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC REVIEW ECONOMIC STUDIES EMERGING COUNTRIES EMERGING ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS EMPIRICAL GROWTH LITERATURE EMPIRICAL RESULTS EXCHANGE RATE EXCHANGE RATE REGIME EXCHANGE RATE REGIMES EXCHANGE RATES EXOGENOUS SHOCKS EXOGENOUS VARIABLE EXOGENOUS VARIABLES EXPORT PRICES EXPORTS EXTERNAL SHOCK EXTERNAL SHOCKS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL ECONOMICS FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MARKETS FINANCIAL OPENNESS FLOATING REGIMES FOREIGN EXCHANGE GDP GDP PER CAPITA GRANGER CAUSALITY GROWTH PERFORMANCE GROWTH VOLATILITY IDENTIFICATION ASSUMPTIONS IMPORT PRICES INCOME INCOME LEVELS INTERNATIONAL COMPARABILITY LABOR MARKET LABOR MARKETS LIQUIDITY LOW-INCOME COUNTRIES MACROECONOMIC FLUCTUATIONS MACROECONOMIC MODELS MACROECONOMIC PERFORMANCE MACROECONOMIC POLICY MACROECONOMIC STABILITY MACROECONOMIC VARIABLES MACROECONOMIC VOLATILITY MACROECONOMICS MEAN CHANGE MEASURES OF VOLATILITY MIDDLE EAST MIDDLE-INCOME COUNTRIES MONETARY ECONOMICS NATIONAL ACCOUNTS NEGATIVE COEFFICIENT NEGATIVE EFFECT NEGATIVE SHOCKS NEGATIVE TERMS NET WORTH NORTH AFRICA 0 HYPOTHESIS OPEN ECONOMIES OPEN ECONOMY OUTPUT GROWTH OUTPUT PER CAPITA OUTPUT VOLATILITY POINT ESTIMATES POLICY RESEARCH POLITICAL ECONOMY POSITIVE ROLE POSITIVE SHOCKS PRIVATE SECTOR PRODUCT MARKET REAL GDP REGRESSION ANALYSIS RELATIVE IMPORTANCE SIGNIFICANT EFFECT SIGNIFICANT IMPACT STRUCTURAL CHARACTERISTICS SUB-SAHARAN AFRICA TERMS OF TRADE TERMS-OF-TRADE SHOCKS TRADE DATA TRADE OPENNESS TRADE SHOCKS TRANSMISSION OF SHOCKS UNDUE INFLUENCE VOLUME OF TRADE VULNERABILITY TO SHOCKS WESTERN EUROPE
Online Access:	http://documents.worldbank.org/curated/en/2006/12/7259016/structural-determinants-external-vulnerability http://hdl.handle.net/10986/9279

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spelling	okr-10986-92792021-04-23T14:02:42Z The Structural Determinants of External Vulnerability Loayza, Norman V. Raddatz, Claudio ADVERSE SHOCKS AGGREGATE OUTPUT ASYMMETRIC SHOCKS AUTOREGRESSION BENCHMARK BUSINESS CYCLE CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL MOBILITY CAPITAL STOCK COUNTRY CHARACTERISTICS COUNTRY GROWTH PERFORMANCE COUNTRY SPECIFIC COUNTRY-BY-COUNTRY BASIS COVARIANCE MATRIX CROSS COUNTRY CROSS COUNTRY EVIDENCE CROSS-COUNTRY EVIDENCE CROSS-COUNTRY REGRESSION CUMULATIVE EFFECT CURRENT ACCOUNT DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DIFFERENTIAL IMPACT DISTRIBUTED LAGS DOMESTIC CREDIT ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC REVIEW ECONOMIC STUDIES EMERGING COUNTRIES EMERGING ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS EMPIRICAL GROWTH LITERATURE EMPIRICAL RESULTS EXCHANGE RATE EXCHANGE RATE REGIME EXCHANGE RATE REGIMES EXCHANGE RATES EXOGENOUS SHOCKS EXOGENOUS VARIABLE EXOGENOUS VARIABLES EXPORT PRICES EXPORTS EXTERNAL SHOCK EXTERNAL SHOCKS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL ECONOMICS FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MARKETS FINANCIAL OPENNESS FLOATING REGIMES FOREIGN EXCHANGE GDP GDP PER CAPITA GRANGER CAUSALITY GROWTH PERFORMANCE GROWTH VOLATILITY IDENTIFICATION ASSUMPTIONS IMPORT PRICES INCOME INCOME LEVELS INTERNATIONAL COMPARABILITY LABOR MARKET LABOR MARKETS LIQUIDITY LOW-INCOME COUNTRIES MACROECONOMIC FLUCTUATIONS MACROECONOMIC MODELS MACROECONOMIC PERFORMANCE MACROECONOMIC POLICY MACROECONOMIC STABILITY MACROECONOMIC VARIABLES MACROECONOMIC VOLATILITY MACROECONOMICS MEAN CHANGE MEASURES OF VOLATILITY MIDDLE EAST MIDDLE-INCOME COUNTRIES MONETARY ECONOMICS NATIONAL ACCOUNTS NEGATIVE COEFFICIENT NEGATIVE EFFECT NEGATIVE SHOCKS NEGATIVE TERMS NET WORTH NORTH AFRICA 0 HYPOTHESIS OPEN ECONOMIES OPEN ECONOMY OUTPUT GROWTH OUTPUT PER CAPITA OUTPUT VOLATILITY POINT ESTIMATES POLICY RESEARCH POLITICAL ECONOMY POSITIVE ROLE POSITIVE SHOCKS PRIVATE SECTOR PRODUCT MARKET REAL GDP REGRESSION ANALYSIS RELATIVE IMPORTANCE SIGNIFICANT EFFECT SIGNIFICANT IMPACT STRUCTURAL CHARACTERISTICS SUB-SAHARAN AFRICA TERMS OF TRADE TERMS-OF-TRADE SHOCKS TRADE DATA TRADE OPENNESS TRADE SHOCKS TRANSMISSION OF SHOCKS UNDUE INFLUENCE VOLUME OF TRADE VULNERABILITY TO SHOCKS WESTERN EUROPE The authors examine empirically how domestic structural characteristics related to openness and product- and factor-market flexibility influence the impact that terms-of-trade shocks can have on aggregate output. For this purpose, they apply an econometric methodology based on semi-structural vector auto-regressions to a panel of 90 countries with annual observations for the period 1974-2000. Using this methodology, the authors isolate and standardize the shocks, estimate their impact on GDP, and examine how this impact depends on the domestic conditions outlined above. They find that larger trade openness magnifies the output impact of external shocks, particularly the negative ones, while improvements in labor market flexibility and financial openness reduce their impact. Domestic financial depth has a more nuanced role in stabilizing the economy. It helps reduce the impact of external shocks particularly in environments of high exposure-that is, when trade and financial openness are high, firm entry is unrestricted, and labor markets are rigid. 2012-06-26T19:09:31Z 2012-06-26T19:09:31Z 2006-12 http://documents.worldbank.org/curated/en/2006/12/7259016/structural-determinants-external-vulnerability http://hdl.handle.net/10986/9279 English en_US Policy Research Working Paper; No. 4089 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
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	ADVERSE SHOCKS AGGREGATE OUTPUT ASYMMETRIC SHOCKS AUTOREGRESSION BENCHMARK BUSINESS CYCLE CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL MOBILITY CAPITAL STOCK COUNTRY CHARACTERISTICS COUNTRY GROWTH PERFORMANCE COUNTRY SPECIFIC COUNTRY-BY-COUNTRY BASIS COVARIANCE MATRIX CROSS COUNTRY CROSS COUNTRY EVIDENCE CROSS-COUNTRY EVIDENCE CROSS-COUNTRY REGRESSION CUMULATIVE EFFECT CURRENT ACCOUNT DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DIFFERENTIAL IMPACT DISTRIBUTED LAGS DOMESTIC CREDIT ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC REVIEW ECONOMIC STUDIES EMERGING COUNTRIES EMERGING ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS EMPIRICAL GROWTH LITERATURE EMPIRICAL RESULTS EXCHANGE RATE EXCHANGE RATE REGIME EXCHANGE RATE REGIMES EXCHANGE RATES EXOGENOUS SHOCKS EXOGENOUS VARIABLE EXOGENOUS VARIABLES EXPORT PRICES EXPORTS EXTERNAL SHOCK EXTERNAL SHOCKS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL ECONOMICS FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MARKETS FINANCIAL OPENNESS FLOATING REGIMES FOREIGN EXCHANGE GDP GDP PER CAPITA GRANGER CAUSALITY GROWTH PERFORMANCE GROWTH VOLATILITY IDENTIFICATION ASSUMPTIONS IMPORT PRICES INCOME INCOME LEVELS INTERNATIONAL COMPARABILITY LABOR MARKET LABOR MARKETS LIQUIDITY LOW-INCOME COUNTRIES MACROECONOMIC FLUCTUATIONS MACROECONOMIC MODELS MACROECONOMIC PERFORMANCE MACROECONOMIC POLICY MACROECONOMIC STABILITY MACROECONOMIC VARIABLES MACROECONOMIC VOLATILITY MACROECONOMICS MEAN CHANGE MEASURES OF VOLATILITY MIDDLE EAST MIDDLE-INCOME COUNTRIES MONETARY ECONOMICS NATIONAL ACCOUNTS NEGATIVE COEFFICIENT NEGATIVE EFFECT NEGATIVE SHOCKS NEGATIVE TERMS NET WORTH NORTH AFRICA 0 HYPOTHESIS OPEN ECONOMIES OPEN ECONOMY OUTPUT GROWTH OUTPUT PER CAPITA OUTPUT VOLATILITY POINT ESTIMATES POLICY RESEARCH POLITICAL ECONOMY POSITIVE ROLE POSITIVE SHOCKS PRIVATE SECTOR PRODUCT MARKET REAL GDP REGRESSION ANALYSIS RELATIVE IMPORTANCE SIGNIFICANT EFFECT SIGNIFICANT IMPACT STRUCTURAL CHARACTERISTICS SUB-SAHARAN AFRICA TERMS OF TRADE TERMS-OF-TRADE SHOCKS TRADE DATA TRADE OPENNESS TRADE SHOCKS TRANSMISSION OF SHOCKS UNDUE INFLUENCE VOLUME OF TRADE VULNERABILITY TO SHOCKS WESTERN EUROPE
spellingShingle	ADVERSE SHOCKS AGGREGATE OUTPUT ASYMMETRIC SHOCKS AUTOREGRESSION BENCHMARK BUSINESS CYCLE CAPITAL ACCOUNT CAPITAL FLOWS CAPITAL MOBILITY CAPITAL STOCK COUNTRY CHARACTERISTICS COUNTRY GROWTH PERFORMANCE COUNTRY SPECIFIC COUNTRY-BY-COUNTRY BASIS COVARIANCE MATRIX CROSS COUNTRY CROSS COUNTRY EVIDENCE CROSS-COUNTRY EVIDENCE CROSS-COUNTRY REGRESSION CUMULATIVE EFFECT CURRENT ACCOUNT DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DIFFERENTIAL IMPACT DISTRIBUTED LAGS DOMESTIC CREDIT ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ECONOMIC PERFORMANCE ECONOMIC REVIEW ECONOMIC STUDIES EMERGING COUNTRIES EMERGING ECONOMIES EMERGING MARKETS EMPIRICAL ANALYSIS EMPIRICAL GROWTH LITERATURE EMPIRICAL RESULTS EXCHANGE RATE EXCHANGE RATE REGIME EXCHANGE RATE REGIMES EXCHANGE RATES EXOGENOUS SHOCKS EXOGENOUS VARIABLE EXOGENOUS VARIABLES EXPORT PRICES EXPORTS EXTERNAL SHOCK EXTERNAL SHOCKS FINANCIAL DEPTH FINANCIAL DEVELOPMENT FINANCIAL ECONOMICS FINANCIAL INSTITUTIONS FINANCIAL INTEGRATION FINANCIAL MARKETS FINANCIAL OPENNESS FLOATING REGIMES FOREIGN EXCHANGE GDP GDP PER CAPITA GRANGER CAUSALITY GROWTH PERFORMANCE GROWTH VOLATILITY IDENTIFICATION ASSUMPTIONS IMPORT PRICES INCOME INCOME LEVELS INTERNATIONAL COMPARABILITY LABOR MARKET LABOR MARKETS LIQUIDITY LOW-INCOME COUNTRIES MACROECONOMIC FLUCTUATIONS MACROECONOMIC MODELS MACROECONOMIC PERFORMANCE MACROECONOMIC POLICY MACROECONOMIC STABILITY MACROECONOMIC VARIABLES MACROECONOMIC VOLATILITY MACROECONOMICS MEAN CHANGE MEASURES OF VOLATILITY MIDDLE EAST MIDDLE-INCOME COUNTRIES MONETARY ECONOMICS NATIONAL ACCOUNTS NEGATIVE COEFFICIENT NEGATIVE EFFECT NEGATIVE SHOCKS NEGATIVE TERMS NET WORTH NORTH AFRICA 0 HYPOTHESIS OPEN ECONOMIES OPEN ECONOMY OUTPUT GROWTH OUTPUT PER CAPITA OUTPUT VOLATILITY POINT ESTIMATES POLICY RESEARCH POLITICAL ECONOMY POSITIVE ROLE POSITIVE SHOCKS PRIVATE SECTOR PRODUCT MARKET REAL GDP REGRESSION ANALYSIS RELATIVE IMPORTANCE SIGNIFICANT EFFECT SIGNIFICANT IMPACT STRUCTURAL CHARACTERISTICS SUB-SAHARAN AFRICA TERMS OF TRADE TERMS-OF-TRADE SHOCKS TRADE DATA TRADE OPENNESS TRADE SHOCKS TRANSMISSION OF SHOCKS UNDUE INFLUENCE VOLUME OF TRADE VULNERABILITY TO SHOCKS WESTERN EUROPE Loayza, Norman V. Raddatz, Claudio The Structural Determinants of External Vulnerability
relation	Policy Research Working Paper; No. 4089
description	The authors examine empirically how domestic structural characteristics related to openness and product- and factor-market flexibility influence the impact that terms-of-trade shocks can have on aggregate output. For this purpose, they apply an econometric methodology based on semi-structural vector auto-regressions to a panel of 90 countries with annual observations for the period 1974-2000. Using this methodology, the authors isolate and standardize the shocks, estimate their impact on GDP, and examine how this impact depends on the domestic conditions outlined above. They find that larger trade openness magnifies the output impact of external shocks, particularly the negative ones, while improvements in labor market flexibility and financial openness reduce their impact. Domestic financial depth has a more nuanced role in stabilizing the economy. It helps reduce the impact of external shocks particularly in environments of high exposure-that is, when trade and financial openness are high, firm entry is unrestricted, and labor markets are rigid.
format	Publications & Research :: Policy Research Working Paper
author	Loayza, Norman V. Raddatz, Claudio
author_facet	Loayza, Norman V. Raddatz, Claudio
author_sort	Loayza, Norman V.
title	The Structural Determinants of External Vulnerability
title_short	The Structural Determinants of External Vulnerability
title_full	The Structural Determinants of External Vulnerability
title_fullStr	The Structural Determinants of External Vulnerability
title_full_unstemmed	The Structural Determinants of External Vulnerability
title_sort	structural determinants of external vulnerability
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2006/12/7259016/structural-determinants-external-vulnerability http://hdl.handle.net/10986/9279
_version_	1764406802736218112

The Structural Determinants of External Vulnerability

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