Trade, Risk, and the Demand for Social Insurance: A Global Perspective

Viewed from a global perspective, trade propagates but does not create risk. Trade reduces price variability for regions facing less-than-perfectly correlated random shocks and may allow risk pooling that reduces the demand for private and public insurance, whereas autarky is characterized by price, income, and utility risk. Trade may also shift the distribution of risk among households, possibly raising or lowering the social cost of risk and the demand for insurance. The analysis of trade and risk in a global framework suggests new perspectives for empirical and policy analysis. †Prepared for presentation at a conference on “The New Political Economy of Globalization” sponsored by the Leverhulme Centre for Research on Globalisation and Economic Policy and the Murphy Institute of Political Economy, New Orleans, 20-21 April, 2007.