Demand risk and diversification through international trade

• 成果类型: Article
• 署名作者: Esposito, Federico
• 署名单位: Tufts University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2021.103562
• 发表日期: 2022
• 关键词: demand uncertainty; Risk diversification; Welfare gains from trade; gravity equation

摘要

I develop a theory of risk diversification through geography. In a general equilibrium trade model with monopolistic competition and stochastic demand, risk-averse entrepreneurs exploit the spatial correlation of demand across countries to lower the variance of their global sales. The model implies that both the probability of entry and trade flows to a country are increasing in the Diversification Index, which depends on the multilateral covariance of the country's demand with all other markets. The risk diversification behavior can lead to higher welfare gains from trade than the ones predicted by trade models with risk neutrality. Using a panel of international sales of Portuguese firms, I estimate risk-augmented gravity regressions, which show that the Diversification Index significantly affects trade patterns at the extensive and intensive margins. In general equilibrium, the risk diversification channel increases welfare gains from trade by 17% relative to trade models with risk neutrality.(c) 2021 Elsevier B.V. All rights reserved.