Africana Periodical Literature 
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| Title: | Uncertainty, Trade, and Capital Flows in Sub-Saharan Africa |
| Authors: | Cuddington, John T. Hong Liang Shihua Lu |
| Year: | 1996 |
| Periodical: | Journal of African Economies |
| Volume: | 5 |
| Issue: | 3 |
| Pages: | 192-224 |
| Language: | English |
| Geographic term: | Subsaharan Africa |
| Subjects: | capital movements international trade Economics and Trade |
| Abstract: | Uncertainty looms large on the economic landscape of countries in sub-Saharan Africa. This paper reexamines the implications of high levels of economic uncertainty - due to the prevalence of large internal and external shocks - for the optimal mix of production, trade and capital flows. Based on a review of relevant theoretical literature, the paper argues that increased opportunities for international risk-sharing and intertemporal trade could have important effects on real productive activities. In the presence of uncertainty and limited international capital flows, diversifying production - and exports - rather than specializing according to comparative advantage may be desirable depending on a country's degree of risk aversion. Once international borrowing and lending become available, however, it may provide a more efficient mechanism for smoothing consumption in the face of income fluctuations than does diversifying production and exports. The ability to trade equity securities (which represent claims on uncertain future production) in world capital markets permits additional risk-sharing possibilities. In some circumstances where equities trade is well-developed, production diversification is completely unnecessary. App., bibliogr., notes, ref., sum. (Comments by S. Ibi Ajayi, p. 225-230.) |
