NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Risk-Taking, Global Diversification, and Growth

Maurice Obstfeld

NBER Working Paper No. 4093 (Also Reprint No. r1935)
Issued in June 1992
NBER Program(s):   EFG

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.

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Document Object Identifier (DOI): 10.3386/w4093

Published: American Economic Review, December 1994 citation courtesy of

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