Effect of structural economic vulnerability on the participation in international trade

This paper has investigated the effect of countries' structural economic vulnerability (EVI) on their participation in international trade, using an unbalanced panel dataset of 118 countries over the period from 1996 to 2018, and the two-step system generalized method of moments estimator. It has revealed several findings. Higher EVI leads to a lower participation in international trade, and this negative effect is more pronounced in countries that face higher trade costs. This is, in particular, the case for landlocked developing countries and least developed countries. Development aid contributes to dampening the negative effect of EVI on countries' participation in international trade. Moreover, this negative impact may turn out to be positive for high amounts of development aid. The policy implications of this analysis have been discussed.