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International risk sharing and commodity prices
Canadian Journal of Economics (2012)
  • Martin Berka, Victoria University of Wellington
  • Mario Crucini, Vanderbilt University
  • Chih-Wei Wang

Cole and Obstfeld (1991) exposited a classic result where equilibrium movements in the terms of trade could make ex ante risk-sharing arrangements unnecessary: a unity elasticity of substitution across goods and production specialization. This paper extends their model to N countries and M commodities (N > M). Here the terms of trade provides insurance against commodity-specific shocks, not country-specific shocks. Using commodity-level production data at the national level and world commodity prices, we document significant terms of trade variability and positive responses of nation-specific production to terms of trade improvements. The endogenous terms of trade insurance mechanism highlighted in CO is virtually non-existent.

Publication Date
May, 2012
Citation Information
Martin Berka, Mario Crucini and Chih-Wei Wang. "International risk sharing and commodity prices" Canadian Journal of Economics Vol. 45 Iss. 2 (2012)
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