This project re-investigates the extent of international consumption risk sharing across countries and time. While there are some works documenting that financial globalization/openness is related to the degree of risk sharing, we contribute to the current literature by further exploring the role of banking sector outreach and insurance sector development on the extent of international risk sharing. In addition, we also explore whether a countrys financial structure (bank-based vs market-based) displays any discernible risk-sharing effect. Overall, the empirical results indicate that, while there is no significant evidence of risk-sharing effect of insurance sector development and financial structure, the impact of financial sector outreach on improving the degree of risk sharing is economically large and statistically significant (especially in the middle-income countries). Moreover, the key finding is robust to a collection of sensitivity checks, e.g., restricted sample, different consumption measures, alternative empirical specifications/approaches, serially correlated errors, endogeneity, and outliers.
Ho-Chuan Huang, University of Tamkang, Taiwan
Chih-Chuan Yeh, University of Overseas Chinese, Taiwan
Stream: Economics and Management
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