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International Risk-Sharing and Commodity Prices

Martin Berka (), Mario Crucini () and Chih-Wei Wang ()
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Chih-Wei Wang: Department of Economics, Pacific Lutheran University

No 1121, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: Cole and Obstfeld (1991) exposited a classic result where equilibrium movements in the terms of trade could make ex ante risk-sharing arrangements unnecessary: a unity elasticity of substitution across goods and production specialization. This paper extends their model to N countries and M commodities (N > M). Here the terms of trade provides insurance against commodity-specific shocks, not country-specific shocks. Using commodity-level production data at the national level and world commodity prices we document significant terms of trade variability and positive responses of nation-specific production to terms of trade improvements. The endogenous terms of trade insurance mechanism highlighted in CO is virtually non-existent.

Keywords: Risk-sharing; developing countries; terms of trade (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-int and nep-opm
Date: 2011-10
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http://www.accessecon.com/pubs/VUECON/vu11-w21.pdf First version, October 2011 (application/pdf)

Related works:
Journal Article: International risk sharing and commodity prices (2012) Downloads
Working Paper: International risk sharing and commodity prices (2011) Downloads
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