Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Uncertainty, arbitrage, and intra-industry trade
AU - Dasgupta, Sudipto
AU - Ray, Tridip
AU - Pong Wong, Kit
PY - 2002/11
Y1 - 2002/11
N2 - When firms in the same industry located in different regions or countries experience shocks to production costs in their respective industries that are imperfectly correlated, arbitrage opportunities automatically lead to trade. Trade can either stabilize or destabilize the price faced by producers in a given country. Producers’ surplus is affected , owing to the ‘variance-covariance’ effect, while consumers’ surplus is more directly affected through the variance of the product price. We examine how consumers’ surplus, producers’ surplus, and social welfare are affected when the regions switch from autarky to free trade in the presence of industry and region-specific cost shocks.
AB - When firms in the same industry located in different regions or countries experience shocks to production costs in their respective industries that are imperfectly correlated, arbitrage opportunities automatically lead to trade. Trade can either stabilize or destabilize the price faced by producers in a given country. Producers’ surplus is affected , owing to the ‘variance-covariance’ effect, while consumers’ surplus is more directly affected through the variance of the product price. We examine how consumers’ surplus, producers’ surplus, and social welfare are affected when the regions switch from autarky to free trade in the presence of industry and region-specific cost shocks.
U2 - 10.1111/1540-5982.00153
DO - 10.1111/1540-5982.00153
M3 - Journal article
VL - 35
SP - 757
EP - 785
JO - Canadian Journal of Economics / Revue Canadienne d'Économique
JF - Canadian Journal of Economics / Revue Canadienne d'Économique
SN - 0008-4085
IS - 4
ER -