TY  - JOUR
AU  - Obstfeld,Maurice
TI  - Risk-Taking, Global Diversification, and Growth
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4093
PY  - 1995
Y2  - January 1995
UR  - http://www.nber.org/papers/w4093
L1  - http://www.nber.org/papers/w4093.pdf
N1  - Author contact info:
Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu
AB  - 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.
ER  -