The trade effect of price risk: a system-wide approach

In this study, we are concern with incorporating risk factors into the Almost Ideal Demand System model. In the modified model, the risk factors affect trade response to price changes (the indirect effect) and the reallocation of the import expenditure (the direct effect). This specification can be used to explain why the trade effect of risk factors is ambiguous regarding the magnitude and sign. The empirical application to the US whitefish import market reveals the proportionality between the risk and the price effects and further implies a general positive direct effect. Copyright Springer-Verlag Berlin Heidelberg 2015