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Risk Sharing from International Factor Income: Explaining Cross-Country Differences

  • Vadym Volosovych

    ()

    (Department of Economics, College of Business, Florida Atlantic University)

Access to world capital markets and net investment income flows between countries help protect national income from country-specific output shocks. I empirically study what factors explain cross-country differences in the extent of risk sharing from international factor income. An index of investor protection is the leading causal variable for the estimated amount of risk sharing over the 1985–2004 period. Improving investor protection in Russia to Denmark’s level implies five times larger risk sharing compared to the sample average. These results indicate one possible way to reap large potential benefits from international risk sharing.

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File URL: http://home.fau.edu/vvolosov/web/FI_20090108.pdf
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File Function: Revised version, 2009
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Paper provided by Department of Economics, College of Business, Florida Atlantic University in its series Working Papers with number 06008.

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Length: 46 pages
Date of creation: Apr 2006
Date of revision: Jan 2009
Handle: RePEc:fal:wpaper:06008
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Web page: http://business.fau.edu/economics

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