International Trade and Investment.

• Position: Bureau News

The NBER's Program on International Trade and Investment met in Cambridge on March 31. Giovanni Maggi, NBER and Princeton University, and Andres Rodriguez-Clare, NBER and Pennsylvania State University, organized the meeting. These papers were discussed:

Julian Di Giovanni and Andrei Levchenko, IMF, "Openness, Volatility, and the Risk Content of Exports" Pol Antras, Harvard University and NBER; Luis Garicano, University of Chicago; and Esteban Rossi-Hansberg, Princeton University and NBER, "Organizing Offshoring: Middle Managers and Communication Cost"

Doireann Fitzgerald, University of California, Santa Cruz, "Trade Costs, Limited Enforcement, and Risk Sharing: A Joint Test"

Jorge Balat and Guido Porto, World Bank; and Irene Brambilla, Yale University and NBER, "Export Crops, Marketing Costs, and Poverty"

Christian Broda, University of Chicago; Joshua Greenfield, Columbia University; and David Weinstein, Columbia University and NBER; "From Groundnuts to Globalization: A Structural Estimate of Trade and Growth"

It has been observed that more open countries experience higher output growth volatility. DiGiovanni and Levchenko use an industry-level panel dataset of manufacturing production and trade to analyze the mechanisms through which trade can affect the volatility of production. They find that sectors with higher trade are more volatile and that trade leads to increased specialization. These two forces act to increase overall volatility. They also find that sectors that are more open to trade are less correlated with the rest of the economy, an effect that acts to reduce aggregate volatility. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together, they imply that a single standard deviation change in trade openness is associated with an increase in aggregate volatility of about 15 percent of the mean volatility observed in the data. The authors also use these results to provide estimates of the welfare cost of increased volatility under several sets of assumptions. They then propose a summary measure of the riskiness of a country's pattern of export specialization, and analyze its features across countries and over time. There is a great deal of variation in countries' risk content of exports, but it does not have a simple relationship to the level of income or other country characteristics.

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