IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Risk sharing and industrial specialization ; regional and international evidence

  • Sebnem Kalemli-Ozcan
  • Bent E. Sorensen
  • Oved Yosha

We provide empirical evidence that risk sharing enhances specialization in production. To the best of our knowledge, this well-established and important theoretical proposition has not been tested before. Our empirical procedure is summarized as follows. First, we construct a measure of specialization in production, and calculate an index of specialization for each of the European Community (EC) and non-EC OECD countries, U.S. states, Canadian provinces, Japanese prefectures, Latin American countries, and regions of Italy, Spain, and the United Kingdom. Then, we estimate the degree of capital market integration (a measure of risk sharing) within each of these groups of regions: the EC countries, the non-EC OECD countries, the United States, Canada, Japan, Italy, Spain, and the United Kingdom (and rely on another author's estimate for Latin America). Finally, we perform a regression of the specialization index on the degree of risk sharing, controlling for relevant economic variables. We find a positive and significant relation between the degree of specialization of individual members of a group of countries, provinces, states, or prefectures, and the amount of risk that is shared within the group. We perform regressions using variables such as shareholder rights and the size of the financial sector (relative to GDP) as instruments for the amount of inter-regional risk sharing. These regressions confirm that risk sharing--facilitated by a favorable legal environment and a developed financial system--is a direct causal determinant of industrial specialization.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.kansascityfed.org/Publicat/Reswkpap/PDF/rwp00-06.pdf
Download Restriction: no

Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 00-06.

as
in new window

Length:
Date of creation: 2000
Date of revision:
Handle: RePEc:fip:fedkrw:rwp00-06
Contact details of provider: Postal:
1 Memorial Drive, Kansas City, MO 64198-0001

Phone: (816) 881-2254
Web page: http://www.kansascityfed.org/

More information through EDIRC

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Bent E. S�rensen & Oved Yosha, 1998. "International Risk Sharing and European Monetary Unification," Temi di discussione (Economic working papers) 327, Bank of Italy, Economic Research and International Relations Area.
  2. David Hummels & James Levinsohn, 1993. "Monopolistic Competition and International Trade: Reconsidering the Evidence," NBER Working Papers 4389, National Bureau of Economic Research, Inc.
  3. Maurice Obstfeld, 1992. "Risk-Taking, Global Diversification, and Growth," NBER Working Papers 4093, National Bureau of Economic Research, Inc.
  4. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers.
  5. Wacziarg, Romain & Imbs, Jean, 2000. "Stages of Diversification," Research Papers 1653, Stanford University, Graduate School of Business.
  6. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 1999. "Risk Sharing and Industrial Specialization: Regional and International Evidence," Working Papers 99-16, Brown University, Department of Economics.
  7. Forni, Mario & Reichlin, Lucrezia, 1999. "Risk and potential insurance in Europe," European Economic Review, Elsevier, vol. 43(7), pages 1237-1256, June.
  8. Acemoglu, Daron & Zilibotti, Fabrizio, 1996. "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," CEPR Discussion Papers 1426, C.E.P.R. Discussion Papers.
  9. Greenwood, J. & Jovanovic, B., 1988. "Financial Development, Growth, And The Distribution Of Income," RCER Working Papers 131, University of Rochester - Center for Economic Research (RCER).
  10. Maurice Obstfeld, 1993. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
  11. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 172(1), pages 3-3, April.
  12. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May.
  13. Kenneth R. French & James M. Poterba, 1991. "Investor Diversification and International Equity Markets," NBER Working Papers 3609, National Bureau of Economic Research, Inc.
  14. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, vol. 85(1), pages 168-85, March.
  15. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
  16. Elhanan Helpman & Assaf Razin, 1978. "Uncertainty and International Trade in the Presence of Stock Markets," Review of Economic Studies, Oxford University Press, vol. 45(2), pages 239-250.
  17. Jacques Mélitz & Frédéric Zumer, 1999. "Interregional and International Risk Sharing and Lessons for EMU," Sciences Po publications n°2154, Sciences Po.
  18. Ruffin, Roy J., 1974. "Comparative advantage under uncertainty," Journal of International Economics, Elsevier, vol. 4(3), pages 261-273, August.
  19. Hanson, G.H., 1999. "`Market Potential, Increasing Returns, and Geographic Concentration," Working Papers 439, Research Seminar in International Economics, University of Michigan.
  20. Brainard, William C. & Cooper, Richard N., 1968. "Uncertainty and Diversification in International Trade," Food Research Institute Studies, Stanford University, Food Research Institute, issue 03.
  21. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  22. Hess, Gregory D. & Shin, Kwanho, 2000. "Risk sharing by households within and across regions and industries," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 533-560, June.
  23. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
  24. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  25. Martin Ravallion & Shubham Chaudhuri, 1997. "Risk and Insurance in Village India: Comment," Econometrica, Econometric Society, vol. 65(1), pages 171-184, January.
  26. Saint-Paul, G., 1990. "Technological Choice, Financial Markets and Economic Development," DELTA Working Papers 90-30, DELTA (Ecole normale supérieure).
  27. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-62, December.
  28. Grossman, Gene M & Razin, Assaf, 1985. "The Pattern of Trade in a Ricardian Model with Country-Specific Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 193-202, February.
  29. Sumru Altug & Robert Miller, . "Household Choices in Equilibrium," University of Chicago - Population Research Center 87-8, Chicago - Population Research Center.
  30. Fabio Canova & Morten O. Ravn, 1993. "International consumption risk sharing," Economics Working Papers 135, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 1995.
  31. James Harrigan & Egon Zakrajsek, 2000. "Factor supplies and specialization in the world economy," Staff Reports 107, Federal Reserve Bank of New York.
  32. Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
  33. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 174(1), pages 3-3, October.
  34. Mario J. Crucini, 1999. "On International and National Dimensions of Risk Sharing," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 73-84, February.
  35. Tesar, Linda L. & Werner, Ingrid M., 1995. "Home bias and high turnover," Journal of International Money and Finance, Elsevier, vol. 14(4), pages 467-492, August.
  36. Campbell, John & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Scholarly Articles 3221494, Harvard University Department of Economics.
  37. Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
  38. Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-94, March.
  39. N/A, 2000. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 173(1), pages 43-65, July.
  40. Kemp, Murray C & Liviatan, Nissan, 1973. "Production and Trade Patterns under Uncertainty," The Economic Record, The Economic Society of Australia, vol. 49(126), pages 215-27, June.
  41. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 267-97, April.
  42. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-56, October.
  43. Stafano Athanasoulis & Eric van Wincoop, 1998. "Risksharing within the United States: what have financial markets and fiscal federalism accomplished?," Research Paper 9808, Federal Reserve Bank of New York.
  44. Ross Levine & Sara Zervos, . "Stock markets, banks and economic growth ," CERF Discussion Paper Series 95-11, Economics and Finance Section, School of Social Sciences, Brunel University.
  45. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  46. Feeney, JoAnne, 1999. "International risk sharing, learning by doing, and growth," Journal of Development Economics, Elsevier, vol. 58(2), pages 297-318, April.
  47. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  48. Sorensen, Bent E. & Yosha, Oved, 1998. "International risk sharing and European monetary unification," Journal of International Economics, Elsevier, vol. 45(2), pages 211-238, August.
  49. Grossman, Gene M & Razin, Assaf, 1984. "International Capital Movements under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 286-306, April.
  50. Anderson, James E., 1981. "The Heckscher-Ohlin and Travis-Vanek theorems under uncertainty," Journal of International Economics, Elsevier, vol. 11(2), pages 239-247, May.
  51. Helpman, Elhanan, 1981. "International trade in the presence of product differentiation, economies of scale and monopolistic competition : A Chamberlin-Heckscher-Ohlin approach," Journal of International Economics, Elsevier, vol. 11(3), pages 305-340, August.
  52. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
  53. Luca Dedola & Stefano Usai & Marco Vannini, 1999. "An assessment of regional risk sharing in Italy and the United Kingdom," Chapters, in: Economic Growth and Change, chapter 15 Edward Elgar Publishing.
  54. Luigi Zingales, 1995. "What Determines the Value of Corporate Votes?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1047-1073.
  55. repec:spo:wpecon:info:hdl:2441/765 is not listed on IDEAS
  56. N/A, 2000. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 173(1), pages 3-3, July.
Full references (including those not matched with items on IDEAS)

This item is featured on the following reading lists or Wikipedia pages:

  1. Risk Sharing and Industrial Specialization: Regional and International Evidence (AER 2003) in ReplicationWiki

When requesting a correction, please mention this item's handle: RePEc:fip:fedkrw:rwp00-06. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lu Dayrit)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.