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Do regional Trade and Specialization drive intra-regional Risk-Sharing?

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  • Barbara Pfeffer

    (University of Siegen)

Abstract

The goal of the present paper is two-fold. First, I explore the impact of different trade patterns on industrial specialisation and consequently on business cycle co-movements between and within different regions. Especially, I emphasize industrial specialisation as a result of intra- or inter-industry trade. Furthermore, I justify the predictions of different theoretical trade models on the basis of my results. Second, I analyse the degree of risk-sharing between and within the regions in dependence of the previous step. In particular, the purpose is to clarify direct and indirect channels between trade, specialisation, business cycle co-movements and risk sharing. The expectations are that countries within a region with homogeneous specialisations show intra-industry trade. Hence regional business-cycles converge. Consequently, risk-sharing within these regions is not possible. These countries tend to be more internationally financially integrated than regionally. Inter-industry trade arises in countries within regions with heterogeneous specialisation. As a result regional business-cycles diverge. Now, countries can share risk within the region. Regional financial integration is stronger for these countries than international financial integration. One further question is: do the same patterns create risk sharing also in the means of consumption co-movements between or within a region?

Suggested Citation

  • Barbara Pfeffer, 2008. "Do regional Trade and Specialization drive intra-regional Risk-Sharing?," MAGKS Papers on Economics 200813, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:200813
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade; Specialization; Risk Sharing;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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    This paper has been announced in the following NEP Reports:

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