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. We use 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 gro...

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Main Authors: Krishna, Pravin, LEVCHENKO, Andrei A., MA, Lin, MALONEY, William F.
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Language:English
Published: Institutional Knowledge at Singapore Management University 2023
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Online Access:https://ink.library.smu.edu.sg/soe_research/2754
https://ink.library.smu.edu.sg/context/soe_research/article/3753/viewcontent/krishna_levchenko_ma_maloney_2023.pdf
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spelling sg-smu-ink.soe_research-37532024-07-03T05:41:36Z Growth and risk: A view from international trade Krishna, Pravin LEVCHENKO, Andrei A. MA, Lin MALONEY, William F. This paper studies the cross-country patterns of risky innovation and growth through the lens of international trade. We use 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. We then test these two hypotheses using data on disaggregated (HS10) 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. Our 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. 2023-05-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/2754 info:doi/10.1016/j.jinteco.2023.103755 https://ink.library.smu.edu.sg/context/soe_research/article/3753/viewcontent/krishna_levchenko_ma_maloney_2023.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Product quality Financial development Risk International Economics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Product quality
Financial development
Risk
International Economics
spellingShingle Product quality
Financial development
Risk
International Economics
Krishna, Pravin
LEVCHENKO, Andrei A.
MA, Lin
MALONEY, William F.
Growth and risk: A view from international trade
description This paper studies the cross-country patterns of risky innovation and growth through the lens of international trade. We use 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. We then test these two hypotheses using data on disaggregated (HS10) 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. Our 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.
format text
author Krishna, Pravin
LEVCHENKO, Andrei A.
MA, Lin
MALONEY, William F.
author_facet Krishna, Pravin
LEVCHENKO, Andrei A.
MA, Lin
MALONEY, William F.
author_sort Krishna, Pravin
title Growth and risk: A view from international trade
title_short Growth and risk: A view from international trade
title_full Growth and risk: A view from international trade
title_fullStr Growth and risk: A view from international trade
title_full_unstemmed Growth and risk: A view from international trade
title_sort growth and risk: a view from international trade
publisher Institutional Knowledge at Singapore Management University
publishDate 2023
url https://ink.library.smu.edu.sg/soe_research/2754
https://ink.library.smu.edu.sg/context/soe_research/article/3753/viewcontent/krishna_levchenko_ma_maloney_2023.pdf
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