Risk-Taking, Global Diversification, and Growth

Maurice Obstfeld

American Economic Review, 1994, vol. 84, issue 5, 1310-29

Abstract: This paper develops a continuous-time stochastic model in which international risk-sharing can yield substantial welfare gains through its effect on expected consumption growth. The mechanism linking global diversification to growth is an attendant world portfolio shift from safe low-yield capital to riskier high-yield capital. The presence of these two types of capital captures the idea that growth depends on the availability of an ever-increasing array of specialized, hence inherently risky, production inputs. Calibration exercises using consumption and stock-market data imply that most countries reap large steady-state welfare gains from global financial integration. Copyright 1994 by American Economic Association.

Date: 1994
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Related works:
Working Paper: Risk-Taking, Global Diversification, and Growth (1993)
Working Paper: Risk-Taking, Global Diversification, and Growth (1993)
Working Paper: Risk-Taking, Global Diversification, and Growth (1992)
Working Paper: Risk-taking, global diversification, and growth (1992)
Working Paper: Risk-Taking, Global Diversification, and Growth (1992)
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