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  1. Propagation of Crises Across Countries: Trade Roots of Contagion Effects

    Aksen, Ernest; Cukrowski, Jacek; Fischer, Manfred M.
    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...
    (application/pdf) - 18-oct-2016

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