We extend the Cole and Obstfeld model in a number of directions to more accurately assess the terms of trade channel. Two crucial theoretical extensions are: to allow multiple producers of each primary commodity and to allow for incomplete specialization.We find that the negative correlation...

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 <i>N</i> countries and <i>M</i>...

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...