Financial integration and international risk sharing

• 成果类型: Article
• 署名作者: Bai, Yan; Zhang, Jing
• 署名单位: Arizona State University; Arizona State University-Tempe; University of Michigan System; University of Michigan
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2011.08.009
• 发表日期: 2012
• 页码: 17-32
• 关键词: Sovereign default; financial liberalization; financial frictions; International capital flows

摘要

Conventional wisdom suggests that financial liberalization can help countries insure against idiosyncratic risk. There is little evidence, however, that countries have increased risk sharing despite widespread financial liberalization. We show that the key to understanding this puzzling observation is that conventional wisdom assumes frictionless international financial markets, while actual markets are far from frictionless: financial contracts are incomplete and contract enforceability is limited. When countries remove official capital controls, default risk is still present as an implicit barrier to capital flows. If default risk were eliminated, capital flows would be six times greater, and international risk sharing would increase substantially. (C) 2011 Elsevier B.V. All rights reserved.