Yonghyup Oh (Korea Institute for Internation Economic Policy)
Abstract
This paper tests the validity of gravity variables to explain the degree of international consumption risk sharing. Our data show that consumption and output cycles for selected economies in the EU, NAFTA, East Asia and English-speaking countries have synchronized during the four decades since 1950s, but the lack of consumption risk sharing is evident. For the panel of 27 countries our results first show that the gravity variables such as distance, economic size, richness, sharing the same border and sharing the same language are valid in explaining consumption correlations, but among these variables sharing the same border is not significant in explaining correlation. Only richness, sharing the same border and sharing the same language turn out to be significant in explaining consumption risk sharing. When used for each of the four economic blocks in our sample, gravity variables have even less explanatory power with one notable exception that richness matters for the English speaking countries. Richer English speaking countries seem to share consumption risk better than any other group in our sample.
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Publisher Info
Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number
351.
Length: 35 pages Date of creation: Nov 2004 Date of revision: Handle: RePEc:eab:financ:351
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