Do private capital markets insure regional risk? Evidence from the United States and Europe
A striking feature of international economic relations is the limited extent of intertemporal trade and risk-sharing among nations. This paper uses data on consumption, income, and production from regions of the United States to address the question of whether the limited participation of national economies in international capital markets is a fundamental aspect of economic relations among large geographic regions, or whether it is specifically an artifact of international economic relations. We conclude that capital flows among the regions of the United States are significantly larger than those across countries. However, such private markets still provide a relatively limited degree of insurance against regional fluctuations. Copyright Kluwer Academic Publishers 1993
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