TY  - JOUR
AU  - Giovanni,Julian di
AU  - Levchenko,Andrei A.
TI  - The Risk Content of Exports: A Portfolio View of International Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16005
PY  - 2010
Y2  - May 2010
UR  - http://www.nber.org/papers/w16005
L1  - http://www.nber.org/papers/w16005.pdf
N1  - Author contact info:
Julian di Giovanni
Research Department
International Monetary Fund
700 19th Street NW
Washington, DC 20431
Tel: 202/623-7558
Fax: 202/589-7558
E-Mail: jdigiovanni@imf.org

Andrei Levchenko
Department of Economics
University of Michigan
611 Tappan Street
Ann Arbor, MI 48109
Tel: 734/764-3296
E-Mail: alev@umich.edu
AB  - It has been suggested that countries which export in especially risky sectors will experience higher output volatility. This paper develops a measure of the riskiness of a country's pattern of export specialization, and illustrates its features across countries and over time. The exercise reveals large cross-country differences in the risk content of exports. This measure is strongly correlated with terms-of-trade and output volatility, but does not exhibit a close relationship to the level of income, overall trade openness, or other country characteristics. We then propose an explanation for what determines the risk content of exports, based on the theoretical literature exemplified by Turnovsky (1974). Countries with comparative advantage in the safe sectors or strong enough comparative advantage in the risky sectors will specialize, whereas countries whose comparative advantage in the risky sectors is not too strong will diversify their export structure to insure against export income risk. We use both non-parametric and parametric techniques to demonstrate that these theoretical predictions are strongly supported by the data.
ER  -