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Do regional Trade and Specialization drive intra-regional Risk-Sharing?

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  • Barbara Pfeffer

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    (University of Siegen)

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    Abstract

    The goal of the present paper is two-fold. First, I explore the impact of different trade patterns on industrial specialisation and consequently on business cycle co-movements between and within different regions. Especially, I emphasize industrial specialisation as a result of intra- or inter-industry trade. Furthermore, I justify the predictions of different theoretical trade models on the basis of my results. Second, I analyse the degree of risk-sharing between and within the regions in dependence of the previous step. In particular, the purpose is to clarify direct and indirect channels between trade, specialisation, business cycle co-movements and risk sharing. The expectations are that countries within a region with homogeneous specialisations show intra-industry trade. Hence regional business-cycles converge. Consequently, risk-sharing within these regions is not possible. These countries tend to be more internationally financially integrated than regionally. Inter-industry trade arises in countries within regions with heterogeneous specialisation. As a result regional business-cycles diverge. Now, countries can share risk within the region. Regional financial integration is stronger for these countries than international financial integration. One further question is: do the same patterns create risk sharing also in the means of consumption co-movements between or within a region?

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/13-2008_pfeffer.pdf
    File Function: First version, 2008
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    Bibliographic Info

    Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200813.

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    Length: 45 pages
    Date of creation: 2008
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    Publication status: Forthcoming in
    Handle: RePEc:mar:magkse:200813

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    Keywords: Trade; Specialization; Risk Sharing;

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