Globalization and international risk-sharing: do political and social factors matter more than economic integration?

Author name: 
Balli F
Pierucci E

We explore the impact of various forms of globalization upon international risk-sharing applying the KOF globalization indices. The empirical literature, so far, has only investigated economic and financial sides of globalization. By decomposing globalization into its economic, social and political aspects, we gauge the impact of these aspects on the extent of risk-sharing among Organization for Economic Cooperation and Development (OECD), European Monetary Union (EMU) and low and middle income (LMY) countries, obtaining unprecedented results that might shed a light on the open question about the role of globalization in risk-sharing. Our main finding is that noneconomic aspects of globalization are relevant in shaping risk-sharing opportunities. When non-economic aspects are taken into account, economic integration loses relevance, whereas social and political globalization improve risk-sharing. These remarkable unprecedented results entail new policy implications, particularly for EMU and OECD countries, and call for further investigation.

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