Risk Sharing and Industrial Specialization: Regional and International Evidence

FRB of Kansas City Research Working Paper No. 00-06

49 Pages Posted: 6 Jun 2001  

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Koc University, Graduate School of Business

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

Date Written: December 2000

Abstract

We provide empirical evidence that risk sharing enhances specialization in production. First, we calculate an index of specialization for each of the European Community (EC) and non-EC OECD countries, U.S. states, Canadian provinces, Japanese prefectures, Latin American countries, and regions of Italy, Spain, and the United Kingdom. Then, we estimate the degree of capital market integration (risk sharing) within each of these groups of regions. Finally, we perform a regression of the specialization index on the degree of risk sharing, controlling for relevant economic variables and find a positive relation between the degree of specialization and the amount of risk sharing within a group. Instrumental variables regressions confirm that risk sharing is a causal determinant of specialization.

Keywords: Financial Integration, Regional Specialization, International Specialization, Finance and Macroeconomics

JEL Classification: F15, F2, F36, F43

Suggested Citation

Sørensen, Bent E. and Kalemli-Ozcan, Sebnem and Yosha, Oved, Risk Sharing and Industrial Specialization: Regional and International Evidence (December 2000). FRB of Kansas City Research Working Paper No. 00-06. Available at SSRN: https://ssrn.com/abstract=272169 or http://dx.doi.org/10.2139/ssrn.272169

Bent E. Sorensen (Contact Author)

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Sebnem Kalemli-Ozcan

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Koc University, Graduate School of Business ( email )

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

Oved Yosha

Tel Aviv University - The Eitan Berglas School of Economics (Deceased)

N/A

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