Theoretical aspects of trade,risk and growth

An intertemporal model of an open economy incorporating risk in the export price is developed. It is shown how the optimal trajectories for consumption, investment, growth, exports, and resource allocation can be determined using dynamic stochastic programming. The risk sensitivity and time effects of the various trajectories are analyzed for the case of a logarithmic social utility function. Interestingly, the results obtained are not all in conformance with the conventional results of portfolio theory analysis as applied to savings.