Examining the Effect of Corn Price Risk on Import Source Diversification
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This study examines how South Korea diversifies corn import sources with a focus on price and risk effects. A risk-augmented almost ideal demand system is employed to investigate the extent to which import demand system responds to a change in price levels and volatilities. The estimation results indicate that the total expenditure for corn imports is more likely to depend on diverse country sources rather than the US, and the import demand is flexible in adjusting the import demand in response to corn price changes. A substitutable relationship exists between US and Brazilian corn, which is likely to alleviate the potential pressures of rising corn prices on the expenditure for corn imports. Furthermore, the estimation results highlight that the total risk from volatile corn prices induces a reduction in corn imported from the US but a rise from the rest of the world. The results are more attributable to the direct effect induced by a change in risk preferences rather than the indirect effect caused by a change in effective prices due to a change in price volatilities.
Abstract
This study examines how South Korea diversifies corn import sources with a focus on price and risk effects. A risk-augmented almost ideal demand system is employed to investigate the extent to which import demand system responds to a change in price levels and volatilities. The estimation results indicate that the total expenditure for corn imports is more likely to depend on diverse country sources rather than the US, and the import demand is flexible in adjusting the import demand in response to corn price changes. A substitutable relationship exists between US and Brazilian corn, which is likely to alleviate the potential pressures of rising corn prices on the expenditure for corn imports. Furthermore, the estimation results highlight that the total risk from volatile corn prices induces a reduction in corn imported from the US but a rise from the rest of the world. The results are more attributable to the direct effect induced by a change in risk preferences rather than the indirect effect caused by a change in effective prices due to a change in price volatilities.
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