A provincial view of consumption risk sharing in Korea:Asset classes as shock absorbers

Victor Pontines ()

Journal of the Japanese and International Economies, 2020, vol. 55, issue C

Abstract: Using a unique data set on provincial net factor income flows disaggregated across the three asset classes of debt, equity and Foreign Direct Investment reinvested earnings in Korea, we investigated how these asset channels impacted consumption risk sharing during the Global Financial Crisis and the European sovereign debt crisis. Adopting spatial panel methods, this study found in the main that net factor flows of debt, equity and Foreign Direct Investment retained earnings have all contributed favourably to consumption risk sharing during these episodes, with Foreign Direct Investment retained earnings robust in its positive contribution in buffering shocks to consumption. These results suggest that one of the alleged benefits of financial integration in terms of providing the insurance needed to cushion the economy against adverse shocks is tangible and real at least in the context of Korea. We also obtain evidence that apart from asset channels, the combination of the government's social transfer payments and a certain measure of labour mobility help to contribute in mitigating shocks to consumption.

Keywords: Consumption risk sharing; Consumption smoothing; Factor income flows; Financial openness; Spatial panel (search for similar items in EconPapers)
JEL-codes: E21 E25 F21 R12 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:55:y:2020:i:c:s0889158320300010

DOI: 10.1016/j.jjie.2020.101063

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