Time-varying consumption risk-sharing in the era of economic globalization

Abstract

Purpose This study aims to examine the time-varying patterns of consumption risk-sharing among 68 representative countries from 1980 to 2023. Design/methodology/approach Using the theory of international consumption risk-sharing, this study applies a generalized adaptive model to assess the extent of time-varying risk-sharing across these countries. Findings The findings indicate that global consumption risk-sharing patterns have become increasingly heterogeneous. In the context of globalization, the average degree of risk-sharing in both developing and developed countries surpasses that in emerging market countries. The estimated linear trend suggests that risk-sharing in emerging market countries and developing countries exhibits greater stability than in developed countries. Consumption risk-sharing in Southeast Asia, Latin America and Belt and Road countries has not improved, indicating that regional economic integration has not influenced risk-sharing. Practical implications Despite ongoing trends of economic globalization, the global allocation of consumption risks remains constrained, highlighting the need for new collaborative mechanisms. Originality/value This study advances beyond the constraints of earlier research by using a generalized additive model to investigate the time-varying international consumption risk-sharing. Previous studies primarily depended on linear regression models, which provide static or average estimates and fail to account for temporal variations. To address this limitation, the study adopts a nonparametric estimation approach, enabling a more accurate representation of the dynamic nature of risk-sharing.