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What Types of Capital Flows Help Improve International Risk Sharing?

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  • Ergys Islamaj

    (World Bank)

  • M. Ayhan Kose

    (World Bank, Brookings Institution, CAMA, and CEPR)

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?," Koç University-TUSIAD Economic Research Forum Working Papers 2122, Koc University-TUSIAD Economic Research Forum.
    • Handle: RePEc:koc:wpaper:2122
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    2. 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).

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    More about this item

    Keywords

    Capital flows; remittances; aid flows; international risk sharing.;
    All these keywords.

    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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