GROWTH UNCERTAINTY AND RISKSHARING

Stefano Athanasoulis and Eric van Wincoop

No 18194, Economic Reports from Iowa State University, Department of Economics

Abstract: How large are potential benefits from global risksharing? In order to answer this question we propose a new methodology that is closely connected with the empirical growth literature. We obtain estimates of residual risk (growth uncertainty) at various horizons from regressions of country-specific growth in deviation from world growth on a wide set of variables in the information set. Since this residual risk can be entirely hedged through risksharing, we use it to obtain a measure of the potential welfare gain for a representative country. We find that nations can reap very large benefits from engaging in such risksharing arrangements. Using post-war data, the gain for a 35-year horizon, corresponding to an equivalent permanent increase in consumption, is 6.6% when based on a set of 49 countries, and 1.5% when based on 21 OECD countries. Using historical data from 1870 to 1990, we find that the potential gain for a 120-year horizon ranges from 4.9% for a small set of rich countries to 16.5% for a broad set of 24 countries.

Keywords: International Development; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 39
Date: 1997
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://ageconsearch.umn.edu/record/18194/files/er41.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:iowaer:18194

DOI: 10.22004/ag.econ.18194

Access Statistics for this paper

More papers in Economic Reports from Iowa State University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().