Determinants of International Consumption Risk Sharing in Developing Countries

56 Pages Posted: 28 Jul 2020

See all articles by Malin Gardberg

Malin Gardberg

Research Institute of Industrial Economics (IFN)

Date Written: December 20, 2018

Abstract

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

JEL Classification: C23, E02, E21, E44, F38, F62, G15

Suggested Citation

Gardberg, Malin, Determinants of International Consumption Risk Sharing in Developing Countries (December 20, 2018). IFN Working Paper No. 1261, 2019, Available at SSRN: https://ssrn.com/abstract=3641459 or http://dx.doi.org/10.2139/ssrn.3641459

Malin Gardberg (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
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Stockholm, SE-102 15
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