Growth and Risk : A View from International Trade
This paper studies the cross-country patterns of risky innovation and growth through the lens of international trade. It uses a simple theoretical framework of risky quality upgrading by firms under varying levels of financial development to derive...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/699231592936066374/Growth-and-Risk-A-View-from-International-Trade http://hdl.handle.net/10986/33990 |
| Summary: | This paper studies the cross-country
patterns of risky innovation and growth through the lens of
international trade. It uses a simple theoretical framework
of risky quality upgrading by firms under varying levels of
financial development to derive two predictions. First, the
mean rate of quality growth and the corresponding
cross-sectional variance of quality growth in a country are
positively correlated. Second, both the mean and variance of
quality changes are positively correlated with the
country's level of financial development. The paper
tests these two hypotheses using data on disaggregated
(Harmonized System 10- digit) bilateral exports to the
United States. The patterns in the data are consistent with
the theory. The mean and the variance of quality growth are
strongly positively correlated with each other. Countries
with greater financial depth are systematically
characterized by higher mean and higher variance in the
growth of product quality. The findings suggest a
mean-variance trade-off in product quality improvements
along the development path. Increases in financial depth do
not imply lower variability of changes in the product space. |
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