Trade Openness and Volatility, joint with Julian di Giovanni Abstract: This paper examines the mechanisms through which output volatility is related to trade openness using an industry-level panel dataset of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade is accompanied by increased specialization. These two forces imply increased aggregate volatility. Third, sectors that are more open to trade are less correlated with the rest of the economy, an effect that acts to reduce overall volatility. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the relationship between trade openness and overall volatility is positive and economically significant. The impact also varies a great deal with country characteristics. We estimate that the same increase in openness is associated with an increase in aggregate volatility that is five times larger in developing countries compared to developed ones. Finally, we find that the marginal impact of openness on volatility roughly doubled in the last thirty years, implying that trade has become more closely related to volatility over time. JEL Classification Codes: F15, F40 Keywords:trade, output volatility, specialization, comovement, sector-level data