International capital market imperfections: evidence from geographical features of international consumption risk sharing

This article attempts to rationalize the validity of gravity variables to explain the degree of international consumption risk sharing. We find that for a panel of 54 countries during 1950-2000, variables such as distance, affluence, a common language and the type of legal system are relevant in explaining not only cross-country consumption and output correlations, but consumption risk sharing. Common law countries share consumption risks more than civil law countries. English speaking countries turn out to share consumption risks more than other language groups, and show significantly higher consumption risk sharing even within the group of common law countries.