The Research on Trade Openness and Volatility of the Real Economy

This study analyzed the effect of trade openness on the volatility of the real economy. A total of 24 years of data were collected from 1996 to 2019 for 25 countries belonging to the OECD, and a total of 8 observations were derived for 3 years for each country to measure volatility. Since there is no standardized theoretical model related to the volatility of the real economy, the main variables of the economic growth model were used and total fixed capital formation to GDP, population growth rate, and government expenditure to GDP were considered as control variables, and trade openness was considered as an independent variable. The non-linear relationship between trade openness and real economy volatility was verified by additionally considering the square term of trade openness. As results of the analyses, no significant results were derived from data from before the global financial crisis, but using data from after the global financial crisis, the results showed that the volatility of the real economy was influenced by the population growth rate, It was confirmed that there was a significant negative relationship with the degree of openness to the outside world. In addition, the degree of openness to the outside world was found to have a significant inverted U-shaped relationship with the volatility of the real economy. These results show the possibility that the volatility of the real economy may increase as trade openness increases after the global financial crisis, but that beyond a certain level, the volatility of the real economy may actually be reduced.