Does Export Concentration Cause Volatility?

This paper investigates the contributions of institutions and export concentration in determining aggregate volatility. Geographically disadvantaged countries often experience a concentrated export structure which makes them more vulnerable to external shocks. Based on a gravity regression, a measure of export concentration is constructed which is based entirely on geographical characteristics. However, since export concentration ratios are not additively separable across countries we use an inequality decomposition method in order to obtain an aggregate measure of concentration. Instrumental variables regressions using constructed export concentration as an instrument confirm that concentration has a particularly strong effect on volatility in terms of trade.