Global Sourcing under Uncertainty

Antoine Gervais

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a general equilibrium model of international trade in homogenous intermediate inputs. In the model, trade between countries is driven exclusively by uncertainty in the delivery of inputs. Because their managers are risk-averse, final good firms contract with multiple suppliers located in different countries in an attempt to decrease the variability of their profits. The analysis shows that risk diversification provides an incentive for international trade over and above such reasons as comparative advantages (emphasized in classical models of international trade) and economies of scale (emphasized in new trade models), and highlights a new channel – a reduction in uncertainty – through which trade liberalization increases welfare.

Keywords: Intermediate inputs; international trade; sourcing; trade liberalization; uncertainty. (search for similar items in EconPapers)
JEL-codes: F1 (search for similar items in EconPapers)
Date: 2020-08-06
New Economics Papers: this item is included in nep-cta and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:102285

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