Risk Sharing and Institutional Quality: Evidence from OECD and Emerging Economies

Abstract

In this paper, we investigate the impact of institutional quality on risk sharing across Organisation for Economic Co-operation and Development (OECD) and emerging economies (EMEs). It has been found that the quality of institutions and risk sharing are significantly interrelated among OECD members (mostly through credit market channel), but not for the EMEs. Our results are consistent when we control for pre- and post-GFC periods. The reason why the impact of institutional quality on risk sharing is limited among EMEs might be due to the significant monetary injections from advanced economies in the form of remittances and financial aid which might understate other factors that influence risk sharing.