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Might global uncertainty promote international trade?

by Baley, Isaac
Authors: Veldkamp, Laura | Waugh, Michael E. Series: NBER working paper series Economic Fluctuations and Growth International Finance and Macroeconomics International Trade and Investment . 25606 Published by : NBER (Cambridge) Physical details: 46 p. Subject(s): Mercado | Comércio internacional | Modelos Year: 2019
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Item type Location Call number Copy Status Date due
Documento de trabalho Documento de trabalho Instituto Superior de Economia e Gestão
ISEG (iseg)
Serial 155//25606 (Browse shelf) 1 Sem empréstimo

Common wisdom dictates that uncertainty impedes trade—we show that uncertainty can fuel more trade in a simple general equilibrium trade model with information frictions. In equilibrium, increases in uncertainty increase both the mean and the variance in returns to exporting implying that trade can increase or decrease with uncertainty depending on preferences. Under general conditions on preferences, we characterize the importance of these forces using a sufficient statistics approach. Higher uncertainty leads to increases in trade because agents receive improved terms of trade, particularly in states of nature where consumption is most valuable. Trade creates value, in part, by offering a mechanism to share risk and risk sharing is most effective when both parties are uninformed.

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