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Import Price Uncertainty And The Distribution Of Income

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  • Elie Appelbaum
  • Ulrich Kohli

Abstract

In this paper we estimate oil and nonoil import demand functions for the United States under the assumption that import prices are uncertain. Both import demand functions are formally derived from an expected utility maximization problem, treating imports as inputs to the technology. The model allows us to test for risk aversion and to assess the impact of uncertainty on the volume of imports, gross output, and the distribution of income. We find that uncertainty leads to a reduction in welfare, imports, and gross output. Moreover, it hurts labor relatively much more than capital. The impact of uncertainty, however, is found to be quite small. © 1997 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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  • Elie Appelbaum & Ulrich Kohli, 1997. "Import Price Uncertainty And The Distribution Of Income," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 620-630, November.
    • Handle: RePEc:tpr:restat:v:79:y:1997:i:4:p:620-630
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    1. Noel Gaston & Ahmed M. Khalid (ed.), 2010. "Globalization and Economic Integration," Books, Edward Elgar Publishing, number 13767.
    2. K.K. Gary Wong, 2004. "A New Approach to Modelling Gnp Functions: an Application of Two‐Stage Technologies and Modifying Function Framework," Australian Economic Papers, Wiley Blackwell, vol. 43(3), pages 315-339, September.
    3. Christis G. Tombazos, 2003. "A Production Theory Approach to the Imports and Wage Inequality Nexus," Economic Inquiry, Western Economic Association International, vol. 41(1), pages 42-61, January.
    4. Elie Appelbaum & Aman Ullah, 1997. "Estimation Of Moments And Production Decisions Under Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 631-637, November.
    5. Kim, H Youn, 2000. "The Antonelli versus Hicks Elasticity of Complementary and Inverse Input Demand Systems," Australian Economic Papers, Wiley Blackwell, vol. 39(2), pages 245-261, June.
    6. H. Youn Kim, 2000. "The Antonelli Versus Hicks Elasticity of Complementarity and Inverse Input Demand Systems," Australian Economic Papers, Wiley Blackwell, vol. 39(2), pages 245-261, June.
    7. Appelbaum, Elie & Kohli, Ulrich, 1998. "Import-Price Uncertainty, Production Decisions, and Relative Factor Shares," Review of International Economics, Wiley Blackwell, vol. 6(3), pages 345-360, August.
    8. Alberto Behar, 2005. "Does training benefit those who do not get any? Elasticities of complementarity and factor price in South Africa," Economics Series Working Papers 244, University of Oxford, Department of Economics.
    9. Appelbaum, Elie, 2006. "A framework for empirical applications of production theory without expected utility," Journal of Economics and Business, Elsevier, vol. 58(4), pages 290-302.
    10. Alan Woodland & Kishti Sen, 2010. "The volatility of Australian traded goods' prices," Applied Economics, Taylor & Francis Journals, vol. 42(30), pages 3849-3869.
    11. Tombazos, Christis G., 1999. "The impact of imports on the demand for labor in Australia," Economics Letters, Elsevier, vol. 62(3), pages 351-356, March.
    12. Christis G. Tombazos, 2007. "Specialization, The Intermediate Nature Of Traded Products And The Myth Of Import Driven Wage Inequality In The United States," Pacific Economic Review, Wiley Blackwell, vol. 12(1), pages 117-128, February.
    13. Bullock, David S. & Garcia, Philip & Shin, Kie-Yup, 2005. "Measuring producer welfare under output price uncertainty and risk non-neutrality," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 1-21.
    14. Elie Appelbaum, 1996. "An Application of Duality under Uncertainty, Elie Appelbaum," Working Papers 1996_8, York University, Department of Economics.
    15. Cherchye, L. & Post, G.T., 2001. "Methodological Advances in Dea," ERIM Report Series Research in Management ERS-2001-53-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    16. Andrew Muhammad, 2012. "Source Diversification and Import Price Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(3), pages 801-814.
    17. Just, Richard E. & Just, David R., 2011. "Global identification of risk preferences with revealed preference data," Journal of Econometrics, Elsevier, vol. 162(1), pages 6-17, May.
    18. Mustafa Sakr, 2016. "Emerging multinational corporations: a prominent player in the global economy," Working Papers 73, Economic Research Southern Africa.
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    Cited by:

    1. Cherchye, L. & Post, G.T., 2001. "Methodological Advances in Dea," ERIM Report Series Research in Management ERS-2001-53-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    2. Bullock, David S. & Garcia, Philip & Shin, Kie-Yup, 2005. "Measuring producer welfare under output price uncertainty and risk non-neutrality," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(1), pages 1-21.
    3. Elie Appelbaum & Alan D. Woodland, 2010. "The Effects of Foreign Price Uncertainty on Australian Production and Trade," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 162-177, June.
    4. Jaramillo-Villanueva, Jose Luis & Sarker, Rakhal, 2009. "Exchange Rate Sensitivity of Fresh Tomatoes Imports from Mexico to the United States," 2009 Conference, August 16-22, 2009, Beijing, China 51459, International Association of Agricultural Economists.
    5. Tombazos, Christis G., 1999. "The impact of imports on the demand for labor in Australia," Economics Letters, Elsevier, vol. 62(3), pages 351-356, March.
    6. Elie Appelbaum, 1996. "An Application of Duality under Uncertainty, Elie Appelbaum," Working Papers 1996_8, York University, Department of Economics.
    7. 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.
    8. Just, Richard E. & Just, David R., 2011. "Global identification of risk preferences with revealed preference data," Journal of Econometrics, Elsevier, vol. 162(1), pages 6-17, May.
    9. Hu, Cui & Tan, Yong, 2020. "Learning to import from neighbors," China Economic Review, Elsevier, vol. 61(C).
    10. Oyewumi, Olubukola Ayodeju & Sarker, Rakhal, 2010. "Volatility Spill-over in a Customs Union: The Case of South Africa Sheep Import from Namibia," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96196, African Association of Agricultural Economists (AAAE).
    11. Tai-Hsin Huang & Ying-Ting Liao & Li-Chih Chiang, 2010. "An examination on the cost efficiency of the banking industry under multiple output prices' uncertainty," Applied Economics, Taylor & Francis Journals, vol. 42(9), pages 1169-1182.
    12. Christis G. Tombazos, 2010. "Trade and Wage Inequality in a World of Incomplete Diversification," Chapters, in: Noel Gaston & Ahmed M. Khalid (ed.), Globalization and Economic Integration, chapter 8, Edward Elgar Publishing.
    13. Gervais, Antoine, 2018. "Uncertainty, risk aversion and international trade," Journal of International Economics, Elsevier, vol. 115(C), pages 145-158.
    14. Appelbaum, Elie, 2021. "Implicit Trade in Risk and Risk Aversion," MPRA Paper 113000, University Library of Munich, Germany.
    15. Alan Woodland & Kishti Sen, 2010. "The volatility of Australian traded goods' prices," Applied Economics, Taylor & Francis Journals, vol. 42(30), pages 3849-3869.
    16. Alberto Behar, 2008. "Does training benefit those who do not get any? Elasticities of complementarity and factor price in South Africa," Working Papers 073, Economic Research Southern Africa.
    17. Elie Appelbaum, 2000. "Estimating the firm's demand and supply functions under uncertainty without expected utility," Working Papers 2000_5, York University, Department of Economics.
    18. Appelbaum, E., 1989. "Uncertainty And The Measurement Of Productivity," Papers 89-05, York (Canada) - Department of Economics.

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