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Exposure to External Country Specific Shocks and Income Volatility

Using a dataset of 138 countries over a period from 1966 to 2004, this paper analyses the relevance of country specific shocks for income volatility in open economies.

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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 exportersĺ 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.

No: ERSD-2009-04

Marion JANSEN, Carolina LENNON and Roberta PIERMARTINI

Manuscript date: January 2009

Key Words:

income volatility, geographical export diversification, external shocks

JEL classification numbers:

C23, F43, O19


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This is a working paper, and hence it represents research in progress. This paper represents the opinions of the author, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the author. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Statistics Division, World Trade Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by number and title.

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