John T. Cuddington (Economics Department Georgetown University) Hong Liang (Economics Department Georgetown University) Shihua Lu (Economics Department Georgetown University)
Abstract
In most African economies, both agricultural production and the terms- of-trade are highly uncertain. This paper re-examines the implications of such uncertainty for the optimal mix of production and trade under alternative assumptions about international capital flows. The ultimate objective is to explore the possible effects of increased financial integration on real economic activity in developing countries. In the presence of uncertainty and limited international capital flows, diversifying production -- and exports -- rather than specializing according to comparative advantage may be desirable depending on a country’s degree of risk aversion. Once international borrowing and lending becomes available, however, it may provide a more efficient mechanism for coping smoothing consumption in the face of income fluctuations than does diversifying production and exports. The ability to trade equity securities (which represent claims on uncertain future production) in world capital markets permits additional risk sharing possibilities. In some circumstances where equities trade is well- developed, production diversification completely unnecessary. That is, production and price uncertainty can be efficiently hedged through portfolio diversification instead of production diversification.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Length: 54 pages Date of creation: 16 Feb 1996 Date of revision: Handle: RePEc:wpa:wuwpif:9602002
Note: Type of Document - WordPerfect; prepared on IBM PC ; to print on HP; pages: 54 ; figures: included. Invited paper for the Plenary session of the African Economic Research Consortium's (AERC) Research Workshop on "Economic Consequences of Real and Nominal External Shocks in Sub-Saharan Africa" in Nairobi, Kenya in May 1995. GU working paper #95-01. Forthcoming in Journal of African Economies and in an AERC volume to be published by Oxford University Press. Contact details of provider: Web page: http://129.3.20.41
For technical questions regarding this item, or to correct its listing, contact: (EconWPA).
Find related papers by JEL classification: F1 - International Economics - - Trade F2 - International Economics - - International Factor Movements and International Business O0 - Economic Development, Technological Change, and Growth - - General
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Anderson, James E & Riley, John G, 1976.
"International Trade with Fluctuating Prices,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 17(1), pages 76-97, February.
[Downloadable!] (restricted)
Other versions: