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What types of capital flows help improve international risk sharing?

Author

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  • Ergys Islamaj
  • M. Ayhan Kose

Abstract

Cross-border capital flows are expected to lead to increased international risk sharing by facilitating borrowing and lending in global financial markets. This paper examines risk-sharing outcomes of various types of capital flows (foreign direct investment, portfolio equity, debt, remittance, and aid flows) in a large sample of emerging market and developing economies. The results suggest that remittances and aid flows are associated with increased international risk sharing. Other types of capital flows are not consistently correlated with better risk-sharing outcomes. These findings are robust to the use of different econometric specifications, country-specific characteristics, and other controls.

Suggested Citation

  • Ergys Islamaj & M. Ayhan Kose, 2021. "What types of capital flows help improve international risk sharing?," CAMA Working Papers 2021-96, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2021-96
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    File URL: https://crawford.anu.edu.au/sites/default/files/2025-08/96_2021_Islamaj_Kose.pdf
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    Cited by:

    1. is not listed on IDEAS
    2. Binhong Wu & Hongyu Wang & Bangsheng Xie & Zhizhong Xie, 2024. "Source tracing and contagion measurement of carbon emission trading price fluctuation in China from the perspective of major emergencies," PLOS ONE, Public Library of Science, vol. 19(3), pages 1-19, March.
    3. Xu, Haoran & Miao, Wenlong & Zhang, Siyu, 2025. "Cross-border capital inflows and systemic financial risks," International Review of Economics & Finance, Elsevier, vol. 99(C).
    4. Ablam Estel Apeti, 2022. "Household welfare in the digital age: Assessing the effect of mobile money on household consumption volatility in developing countries," Post-Print hal-03819779, HAL.
    5. Apeti, Ablam Estel, 2023. "Household welfare in the digital age: Assessing the effect of mobile money on household consumption volatility in developing countries," World Development, Elsevier, vol. 161(C).
    6. Michael Donadelli & Ivan Gufler, 2024. "Economic and financial integration, capital controls, and risk sharing," Economica, London School of Economics and Political Science, vol. 91(364), pages 1482-1520, October.

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    Keywords

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    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G01 - Financial Economics - - General - - - Financial Crises

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