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Uncertainty, risk aversion and international trade

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  • Gervais, Antoine

Abstract

In this paper, I study the impact of uncertainty in the delivery of inputs on international trade patterns. I develop a model of sourcing decisions where risk-averse managers can contract with multiple suppliers in order to decrease the variability of firm profits. Among other results, the model predicts that firms will buy a larger share of their inputs from low price variability suppliers, and that the distribution of input demand across suppliers will be more dispersed in input markets characterized with high price variability. Econometric evidence suggests that the model is consistent with qualitative features of the data.

Suggested Citation

  • Gervais, Antoine, 2018. "Uncertainty, risk aversion and international trade," Journal of International Economics, Elsevier, vol. 115(C), pages 145-158.
    • Handle: RePEc:eee:inecon:v:115:y:2018:i:c:p:145-158
    DOI: 10.1016/j.jinteco.2018.09.001
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    2. De Sousa, José & Disdier, Anne-Célia & Gaigné, Carl, 2020. "Export decision under risk," European Economic Review, Elsevier, vol. 121(C).
    3. Ashraf, Badar Nadeem & Qian, Ningyu & Shen, Yinjie (Victor), 2021. "The impact of trade and financial openness on bank loan pricing: Evidence from emerging economies," Emerging Markets Review, Elsevier, vol. 47(C).
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    5. Gigout, Timothee & Bricongne, Jean-Charles, 2019. "Explaining the Persistent Effect of Demand Uncertainty on Firm Growth," MPRA Paper 94228, University Library of Munich, Germany.
    6. Esposito, Federico, 2019. "Demand Risk and Diversification through Trade," MPRA Paper 99875, University Library of Munich, Germany.
    7. Baranauskaite Lina & Jurevicienė Daiva, 2021. "Identification of Lithuanian International Trade Risk in Beverages," Economics and Culture, Sciendo, vol. 18(1), pages 100-112, June.
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    9. Antoine Gervais, 2021. "Global sourcing under uncertainty," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1103-1135, November.
    10. Fiocco, Raffaele & Guo, Dongyu, 2020. "Regulatory risk, vertical integration, and upstream investment," European Economic Review, Elsevier, vol. 128(C).
    11. Juan de Lucio & Raúl Mínguez & Asier Minondo & Francisco Requena, 2018. "Benefits of forced experimentation on exports," Working Papers 1812, Department of Applied Economics II, Universidad de Valencia.
    12. Abdul Rashid & M. Kabir Hassan & Hafsa Karamat, 2021. "Firm size and the interlinkages between sales volatility, exports, and financial stability of Pakistani manufacturing firms," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(1), pages 111-134, March.
    13. Esposito, Federico, 2022. "Demand risk and diversification through international trade," Journal of International Economics, Elsevier, vol. 135(C).
    14. Appelbaum, Elie, 2021. "Implicit Trade in Risk and Risk Aversion," MPRA Paper 113000, University Library of Munich, Germany.
    15. Tran Manh Ha & Doan Ngoc Thang, 2023. "Economic sanction and global sourcing complexity: A cross‐country analysis," The World Economy, Wiley Blackwell, vol. 46(4), pages 1017-1050, April.
    16. Gigout, Timothee, 2019. "Firm dynamics in an global and uncertain economy," MPRA Paper 96569, University Library of Munich, Germany, revised 16 Oct 2019.
    17. Tasso Adamopoulos & Fernando Leibovici, 2024. "Trade Risk and Food Security," Working Papers 2024-004, Federal Reserve Bank of St. Louis, revised Feb 2024.
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    20. Chris Muris & Horst Raff & Nicolas Schmitt & Frank Stähler, 2023. "Inventory, Sourcing, and the Effects of Trade Costs: Theory and Empirical Evidence," CESifo Working Paper Series 10253, CESifo.

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