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Source Diversification and Import Price Risk

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  • Andrew Muhammad

Abstract

In this article, I present a theoretical framework and derive an empirical model that relates import price risk to the allocation of an import across exporting sources (source diversification). A differential approach to expected utility theory and firm demand is used to derive a model comparable to more popular demand systems such as the Rotterdam and AIDS models. The model is used in estimating carnation demand in the United Kingdom. Results show that while total carnation imports, expected prices and seasonality are important determinants of import demand by source, there is significant information loss when price risk is not considered. Copyright 2012, Oxford University Press.

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  • Andrew Muhammad, 2012. "Source Diversification and Import Price Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(3), pages 801-814.
    • Handle: RePEc:oup:ajagec:v:94:y:2012:i:3:p:801-814
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    File URL: http://hdl.handle.net/10.1093/ajae/aas016
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    Cited by:

    1. Pei Wang & William Gonzalo Vega Salas, 2020. "Shareholder internationality and importing activities of emerging market firms," Frontiers of Business Research in China, Springer, vol. 14(1), pages 1-20, December.
    2. Gervais, Antoine, 2018. "Uncertainty, risk aversion and international trade," Journal of International Economics, Elsevier, vol. 115(C), pages 145-158.
    3. Antoine Gervais, 2021. "Global sourcing under uncertainty," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1103-1135, November.
    4. Dengjun Zhang, 2015. "The trade effect of price risk: a system-wide approach," Empirical Economics, Springer, vol. 48(3), pages 1149-1167, May.
    5. Elie Appelbaum & Ulrich Kohli, 1997. "Import Price Uncertainty And The Distribution Of Income," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 620-630, November.
    6. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2020. "How do Firms Respond to Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202011250800001118, Iowa State University, Department of Economics.
    7. Andrew Muhammad, 2015. "Price Risk and Exporter Competition in China's Soybean Market," Agribusiness, John Wiley & Sons, Ltd., vol. 31(2), pages 188-197, April.
    8. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2021. "How do Firms Respond to Long-term Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202106020700001118, Iowa State University, Department of Economics.

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