Should Risk Averse Countries be Trade Averse?
Blanchard, Michel; Peltrault, Frédéric (2003), Should Risk Averse Countries be Trade Averse?, EUROPEAN TRADE STUDY GROUP, 2003-09, Madrid, Espagne
TypeCommunication / Conférence
Conference titleEUROPEAN TRADE STUDY GROUP
MetadataShow full item record
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.
Subjects / Keywordsidiosyncratic risk; inferior trade; International trade; risk-aversion
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