Has Consumption Risk Sharing Increased in Asia (and Elsewhere)?

Abstract

What impact has financial globalization had on risk sharing? In

theory, financial globalization should improve international consumption

risk sharing. While the answer to this question is of utmost policymaking

concern, results in the empirical literature are inconclusive.

The paper surveys the extant literature and tries to identify

which factors influence the answer: i) consumption risk sharing seems

to have increased among industrialized countries but much less in

the emerging world. ii) The increase in risk sharing is generally found

to be stronger in studies that focus on the trends rather than purely

cyclical variation in the data. iii) globalization has not only affected

consumption responses to output shocks but also the structure of

these shocks themselves. This, in turn, has affected the measurement

of risk sharing. The paper examines the relevance of these points

on a sample of East Asian Economies. My results indicate that

risk sharing in East Asia has started to increase once the region had

recovered from the Asian crisis.