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Uninsurance through Trade

Author

Listed:
  • Gars, Johan

    (The Beijer Institute of Ecological Economics,)

  • Spiro, Daniel

    (Dept. of Economics, University of Oslo)

Abstract

Trade with differentiated goods normally provides a form of insurance against disasters, such as floods and fires, through an increasing relative price of goods from the a­fflicted country. With open access renewable resources this is reversed. A country hit by a negative shock recovers faster if trading with fewer countries and, if trading with many, shocks affecting also the trading partners are preferred over idiosyncratic shocks. Trade thus increases economic vulnerability to disasters and local disasters will be worse than global. Furthermore, world markets transmit shocks so a natural disaster in one country can cause man-made disasters in competitor countries. These results are particularly relevant for developing countries due to high renewable resource reliance, more problems of open access and more economic vulnerability to disasters. A calibration suggests these concerns may apply to around 60 percent of world fisheries and that around 20 percent risk collapsing following small idiosyncratic shocks.

Suggested Citation

  • Gars, Johan & Spiro, Daniel, 2014. "Uninsurance through Trade," Memorandum 13/2014, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2014_013
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    File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2014/memo-13-2014.pdf
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    Cited by:

    1. Shon M Ferguson & Johan Gars, 2020. "Measuring the impact of agricultural production shocks on international trade flows," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 47(3), pages 1094-1132.

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    More about this item

    Keywords

    Open Access; Renewable Resource; Trade; Disaster; Variety;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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