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Trade Integration and Risk Sharing

2002
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Release : 2002
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Book Synopsis Trade Integration and Risk Sharing by : Aart Kraay

Download or read book Trade Integration and Risk Sharing written by Aart Kraay. This book was released on 2002. Available in PDF, EPUB and Kindle. Book excerpt: What are the effects of increased trade in goods and services on the trade balance? We study the effects of reducing transport costs in a Ricardian model with complete asset markets and find that this increases the volatility of the trade balance. This result applies regardless of whether supply or demand shocks are the main source of economic fluctuations. Both type of shocks generate fluctuations in the trade balance that are in part moderated by stabilizing movements in the terms of trade. Trade integration dampens these terms of trade movements and, for a given distribution of shocks, amplifies fluctuations in the trade balance. To overturn this result, one must assume that either trade integration is sufficiently biased towards goods with strong comparative advantage and/or risk aversion is sufficiently extreme. We calibrate the model to U.S. data and find that, for reasonable parameter values, increased trade in services could double the volatility of the trade balance. Keywords: International trade, risk sharing, trade integration, trade balance. JEL Classification: F15, F36, G15.

Financial Integration, Specialization and Systemic Risk

2008
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Release : 2008
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Book Rating : 663/5 ( reviews)

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Book Synopsis Financial Integration, Specialization and Systemic Risk by : Falko Fecht

Download or read book Financial Integration, Specialization and Systemic Risk written by Falko Fecht. This book was released on 2008. Available in PDF, EPUB and Kindle. Book excerpt:

Capital Market Integration and Consumption Risk Sharing Over the Long Run

2016
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Release : 2016
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Book Synopsis Capital Market Integration and Consumption Risk Sharing Over the Long Run by : Jesper Rangvid

Download or read book Capital Market Integration and Consumption Risk Sharing Over the Long Run written by Jesper Rangvid. This book was released on 2016. Available in PDF, EPUB and Kindle. Book excerpt: We empirically investigate time variation in capital market integration and consumption risk sharing using data for 16 countries from 1875 to 2012. We show that there has been considerable variation over time in the degrees of capital market integration and consumption risk sharing and that higher capital market integration forecasts more consumption risk sharing in the future. This finding is robust to controlling for trade openness and exchange rate volatility as alternative drivers of risk sharing. Finally, we calculate the welfare costs of imperfect consumption risk sharing and find that these costs vary over time, line up with variation in risk sharing, and are quite substantial during periods of low risk sharing.

How Does Financial Globalization Affect Risk Sharing? Patterns and Channels

2007-10 Business & Economics
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Release : 2007-10
Genre : Business & Economics
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Book Synopsis How Does Financial Globalization Affect Risk Sharing? Patterns and Channels by : M. Ayhan Kose

Download or read book How Does Financial Globalization Affect Risk Sharing? Patterns and Channels written by M. Ayhan Kose. This book was released on 2007-10. Available in PDF, EPUB and Kindle. Book excerpt: In theory, one of the main benefits of financial globalization is that it should allow for more efficient international risk sharing. This paper provides a comprehensive empirical evaluation of the patterns of risk sharing among different groups of countries and examines how international financial integration has affected the evolution of these patterns. Using a variety of empirical techniques, we conclude that there is at best a modest degree of international risk sharing, and certainly nowhere near the levels predicted by theory. In addition, only industrial countries have attained better risk sharing outcomes during the recent period of globalization. Developing countries have, by and large, been shut out of this benefit. The most interesting result is that even emerging market economies, which have experienced large increases in cross-border capital flows, have seen little change in their ability to share risk. We find that the composition of flows may help explain why emerging markets have not been able to realize this presumed benefit of financial globalization. In particular, our results suggest that portfolio debt, which has dominated the external liability stocks of most emerging markets until recently, is not conducive to risk sharing.

Global Value Chains and International Risk Sharing

2023 Business logistics
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Release : 2023
Genre : Business logistics
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Book Synopsis Global Value Chains and International Risk Sharing by : Giancarlo Corsetti

Download or read book Global Value Chains and International Risk Sharing written by Giancarlo Corsetti. This book was released on 2023. Available in PDF, EPUB and Kindle. Book excerpt: Unlike final-goods trade, intermediate-input trade through Global Value Chains (GVCs) creates supply-side linkages across borders. We show that, even when GVCs themselves are efficient, they have welfare implications because these linkages affect countries’ ability to share risks in incomplete financial markets. This novel interaction between trade and finance arises from a distinct channel of cross-border transmission with GVCs, the marginal-cost effect. Productivity shocks, by moving relative prices, impact the marginal cost of production both at home and abroad, and therefore, in equilibrium, their relative supply. When international financial markets are incomplete, these supply-side linkages will affect household wealth in both countries, and, in turn, the degree of international risk sharing. The direction and strength of this effect varies with the trade elasticity and the degree of GVC integration, with non-monotonic effects leading to ‘fragmentation traps’ in which small increases in GVC integration reduce risk sharing, while large increases would improve it. We show that in the quantitatively relevant case, GVCs reduce cross-border misalignments, and so endogenously support international risk sharing.

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