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Financial Reforms and Low-Income Households’ Impact on International Consumption Risk Sharing

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Complete financial markets allow countries to share their consumption risks internationally, thereby creating welfare gains through lower volatility of aggregate consumption. Using a panel of 116 countries between 1970–2019, I show that a higher share of low-income households reduce consumption risk sharing, especially so in less-developed countries. Moreover, I find that a broad range of financial market reforms and financial integration have a positive impact on international consumption risk sharing in poorer developing countries, while in emerging market countries, financial market development, financial reforms, and capital account openness has an impact. In advanced economies, financial (stock and bond) market development as well as financial integration improves international risk sharing. A lack of financial reforms, a lower degree of financial integration and a high share of low-income households thus contribute to the degree of risk sharing being lower in developing countries than in advanced economies.

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  • Gardberg, Malin, 2019. "Financial Reforms and Low-Income Households’ Impact on International Consumption Risk Sharing," Working Paper Series 1261, Research Institute of Industrial Economics, revised 30 Jun 2022.
    • Handle: RePEc:hhs:iuiwop:1261
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    More about this item

    Keywords

    International consumption risk sharing; Financial liberalization; Financial integration; Low-income Households;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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