International Risk-Sharing in a Fragmented World

Javier Bianchi, Sebastian Horn, Giovanni Rosso and Cesar Sosa-Padilla

No 35389, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies how geopolitical risk shapes financial fragmentation and international risk-sharing, using bilateral official lending data from 1910 to 2024. We document that when geopolitical risk is high, bilateral lending increasingly follows geopolitical alignment. Because geopolitically aligned countries experience more synchronized shocks, this fragmentation limits the effectiveness of international risk-sharing. To rationalize these patterns, we introduce geopolitical considerations into a limited-commitment model of sovereign borrowing. The model shows that, even with non-discriminatory default, higher geopolitical tensions redirect international lending toward allied countries and weaken risk-sharing.

JEL-codes: F34 G01 H63 (search for similar items in EconPapers)
Date: 2026-06
Note: IFM
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w35389.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Working Paper: International Risk-Sharing in a Fragmented World (2026)
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:nbr:nberwo:35389

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w35389
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().