Propagation of Crises across Countries: Trade Roots of Contagion Effects

Jacek Cukrowski, Ernest Aksen () and Manfred Fischer
Additional contact information
Ernest Aksen: Belarus State Economic University, Postal: 26, Partizanski Av, Minsk, 220070, Republic of Belarus, http://www.bseu.by/english/

Economia Internazionale / International Economics, 2002, vol. 55, issue 2, 213-227

Abstract: The paper provides an explanation of the mechanisms underlying trade

roots of the contagion effects emanating from the recent turmoils. It is argued

that under demand uncertainty risk averse behavior of firms provides a basis

for international trade. The paper shows by means of a simple two-country

model that risk averse firms operating in perfectly competitive markets with

uncertainty of demand tend to diversify markets what gives a basis for international

trade in identical commodities even between identical countries. It is

shown that such trade may be welfare improving despite efficiency losses due

to cross-hauling and transportation costs. The analysis reveals that change of

the expectations concerning market conditions caused by the turmoil in the

neighbor country (i.e., shift in the perception of market conditions) may lead

to macroeconomic destabilization (increase in price level and unemployment,

worsening of terms of trade, and deterioration of trade balance).

Keywords: Crises propagation; contagion; reasons for trade; intra-industry trade; demand uncertainty; risk aversion; market diversification (search for similar items in EconPapers)
JEL-codes: D80 F10 F30 F40 (search for similar items in EconPapers)
Date: 2002
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:ecoint:0190

Access Statistics for this article

Economia Internazionale / International Economics is currently edited by Giovanni Battista Pittaluga

More articles in Economia Internazionale / International Economics from Camera di Commercio Industria Artigianato Agricoltura di Genova Via Garibaldi 4, 16124 Genova, Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Angela Procopio ().