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Should Risk Averse Countries be Trade Averse?

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Peltrault_ETSG_2003.pdf (722.2Kb)
Date
2003
Dewey
Economie internationale
Sujet
idiosyncratic risk; inferior trade; International trade; risk-aversion
JEL code
F10; F13
Conference name
EUROPEAN TRADE STUDY GROUP
Conference date
09-2003
Conference city
Madrid
Conference country
Espagne
URI
https://basepub.dauphine.fr/handle/123456789/134
Collections
  • LEDa : Publications
Metadata
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Author
Blanchard, Michel
Peltrault, Frédéric
Type
Communication / Conférence
Item number of pages
18
Abstract (EN)
Taking seriously the stylized fact that some countries are more risk averse than others regarding business activities, we examine the consequences on international trade and welfare. When risk is idiosyncratic to each manager's project, international differences in manager's risk-aversion distribution become the determinant of trade pattern. Welfare analysis shows that the less risk averse country specialized in the risky commodity is always better off with free trade. But the more risk averse country specialized in unrisky commodity can be worse off. Consequently, risk averse countries can be "trade averse". Moreover, the world's welfare is sometimes decreasing.

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