Determinants of International Consumption Risk Sharing in Developing Countries
No 1261, Working Paper Series from Research Institute of Industrial Economics
Complete financial markets allow countries to share their consumption risks internationally, thereby creating welfare gains through lower volatility of aggregate consumption. This paper empirically looks at international consumption risk sharing and its determinants in a panel of 120 countries from 1970 to 2014. Contrary to some previous studies, I show that financial liberalization and financial integration has a significantly positive impact on international consumption risk sharing in poorer developing countries, whereas in emerging market countries only capital account openness has an impact. Moreover, there is some evidence that high income inequality or a high share of low income individuals reduces consumption smoothing in less developed countries. Lack of financial reforms, a lower degree of financial integration and higher inequality can thus partly explain why the degree of risk sharing is lower in developing countries than in advanced economies.
Keywords: International consumption risk sharing; Financial liberalization; Financial integration; Inequality; Panel data (search for similar items in EconPapers)
JEL-codes: C23 E02 E21 E44 F38 F62 G15 (search for similar items in EconPapers)
Pages: 55 pages
New Economics Papers: this item is included in nep-fdg, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1261
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