Risk-taking, global diversification, and growth

Maurice Obstfeld

No 61, Discussion Paper / Institute for Empirical Macroeconomics from Federal Reserve Bank of Minneapolis

Abstract: This paper develops a dynamic continuous-time model in which international risk sharing can yield substantial welfare gains through its positive effect on expected consumption growth. The mechanism linking global diversification to growth is an attendant world portfolio shift from safe, but low-yield, capital into riskier, high-yield capital. The presence of these two types of capital is meant to capture the idea that growth depends on the availability of an ever-increasing array of specialized, hence inherently risky, production inputs. A partial calibration exercise based on Penn World Table consumption data implies steady-state welfare gains from global financial integration that for some regions amount to several times initial wealth.

Keywords: International trade; Risk (search for similar items in EconPapers)
Date: 1992
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Risk-Taking, Global Diversification, and Growth (1994)
Working Paper: Risk-Taking, Global Diversification, and Growth (1993)
Working Paper: Risk-Taking, Global Diversification, and Growth (1993)
Working Paper: Risk-Taking, Global Diversification, and Growth (1992)
Working Paper: Risk-Taking, Global Diversification, and Growth (1992)
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