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International risk sharing during the globalization era

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  • Robert P. Flood
  • Nancy P. Marion
  • Akito Matsumoto

Abstract

. Though financial globalization should improve international risk sharing, empirical support is lacking. We develop a simple welfare‐based measure that captures how far countries are from the ideal of perfect risk sharing. Applying it to data, we find some evidence that international risk sharing has improved during globalization. Improved risk sharing comes mostly from the convergence in rates of consumption growth among countries rather than from synchronization of consumption at the business cycle frequency. Même si la mondialisation devrait améliorer le partage international du risque, on n’en a pas de confirmation empirique. Les auteurs développent une mesure simple fondée sur le niveau de bien‐être pour déterminer à quelle distance les divers pays se trouvent de l’idéal du parfait partage du risque. Grâce à cette mesure, on trouve que le partage international du risque s’est amélioré avec la mondialisation. Cette amélioration vient surtout de la convergence des taux de croissance de la consommation des divers pays plutôt que de la synchronisation de la consommation à la fréquence du cycle d’affaires.

Suggested Citation

  • Robert P. Flood & Nancy P. Marion & Akito Matsumoto, 2012. "International risk sharing during the globalization era," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(2), pages 394-416, May.
  • Handle: RePEc:wly:canjec:v:45:y:2012:i:2:p:394-416
    DOI: 10.1111/j.1540-5982.2012.01700.x
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    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • D6 - Microeconomics - - Welfare Economics

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