The asymmetric impact of trade openness on output volatility

Studies show that the relationship between openness and output volatility is theoretically ambiguous, but most of these studies provide an empirical estimation for this relationship. This paper investigates the impact of trade openness on output volatility, and how this impact may be affected by the country's level of development. We use a panel dataset for 33 countries for the years of 1980 through 2009. A standard deviation of quarterly real GDP over a 5-year span is used as the dependent variable. Controlling for the country and period-specific effects, the main results are as follows: trade openness increases the output volatility. And, the output volatility of countries with a higher level of development is less affected by trade openness.