Publication Type
Working Paper
Version
publishedVersion
Publication Date
1-2023
Abstract
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.
Keywords
Product quality, financial development, risk
Discipline
International Economics
Research Areas
Applied Microeconomics
First Page
1
Last Page
40
Publisher
SMU Economics & Statistics Working Paper Series, Paper No. 05-2023
City or Country
Singapore
Citation
KRISHNA, Pravin; LEVCHEKO, Andrei A.; MA, Lin; and MALONEY, William F..
Growth and risk: A view from international trade. (2023). 1-40.
Available at: https://ink.library.smu.edu.sg/soe_research/2667
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Comments
Published in Journal of International Economics (2023) 142. DOI: 10.1016/j.jinteco.2023.103755