Abstract
This paper investigates trade volatility in the Association of Southeast Asian Nations Plus Three (ASEAN+3) and its links with output volatility, export diversification, and free trade agreements. To achieve this research objective, we apply several econometric estimators to data from all ASEAN+3 member states over the period 1990–2016. We first find evidence of a positive relationship between output volatility and trade volatility. Second, we reveal that the way export diversification is measured can influence its impacts on bilateral export volatility. Moreover, the relationship between income volatility, trade volatility, and export diversification seems to depend on country size and the level of economic development.
Highlights
International trade is considered one of the most volatile components of gross domestic product (GDP)
This paper aims to explain the pace in output volatility and its variation across Association of Southeast Asian Nations (ASEAN)+3 by employing an empirical model, which will allow us to test the main hypothesis of interest
We investigate the potential role of trade variables, notably trade volatility and export diversification, on income volatility of ASEAN+3 member states
Summary
International trade is considered one of the most volatile components of gross domestic product (GDP). 168 Asian Development Review countries that suffer from big country-specific shocks experience a reduction in volatility as a result of opening up to international trade, because trade is a source of diversification. This paper contributes to empirical trade studies by analyzing the volatility of trade flows and its links with output volatility, international institutions, and trade diversification in ASEAN+3. (iii) How do export diversification and free trade agreements (FTAs) impact ASEAN+3’s trade volatility? We investigate the impacts of trade variables, notably trade volatility and export diversification, on ASEAN+3’s output volatility by applying the generalized method of moments (GMM) estimator.
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