Partial consumption insurance and financial openness across the world

Constantino Hevia and Luis Servén

No 6479, Policy Research Working Paper Series from The World Bank

Abstract: This paper examines the extent of international consumption risk sharing for a group of 50 industrial and developing countries. The analysis is based on the empirical implementation of a model of partial consumption insurance whose parameters have the natural interpretation of coefficients of partial risk sharing even when the null hypothesis of perfect risk sharing is rejected. Estimation results show that rich countries exhibit higher degrees of risk sharing than developing countries, and that the gap between both country groups appears to have widened over the period of financial globalization. Moreover, the pattern of consumption risk sharing is related to the degree of financial openness: countries with larger stocks of foreign assets or liabilities exhibit larger degrees of risk sharing. Furthermore, countries whose foreign asset stocks are more tilted towards foreign direct investment assets also show higher degrees of consumption risk sharing.

Keywords: Labor Policies; Financial Intermediation; Insurance&Risk Mitigation; Emerging Markets; Debt Markets (search for similar items in EconPapers)
Date: 2013-06-01
New Economics Papers: this item is included in nep-ias and nep-opm
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Citations: View citations in EconPapers (1)

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