DP7123 Exposure to External Country Specific Shocks and Income Volatility

Author(s): Marion Jansen, Carolina Lennon, Roberta Piermartini
Publication Date: January 2009
Keyword(s): export diversification, external shocks, income volatility
JEL(s): C23, F43, O19
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7123

Using a dataset of 104 countries over a period from 1966 to 2004, this paper analyses the relevance of country specific shocks for income volatility in open economies. We show that exposure to country specific shocks has a positive and significant impact on GDP volatility. In particular, we find that the degree to which the cycles of different trading partners are correlated is more important in explaining exporters? GDP volatility than the volatility of demand in individual export market. We also show that geographical diversification is a significant determinant of countries' exposure to country specific shocks.