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| Author: | Obstfeld, M. |
| Title: | Risk-taking, global diversification, and growth |
| Journal: | American Economic Review
1994 : DEC, VOL. 84:5, p. 1310-1329 |
| Index terms: | RISK DIVERSIFICATION GROWTH |
| Language: | eng |
| Abstract: | This paper develops a continuous-time stochastic model in which international risk-sharing can yield substantial welfare gains through its effect on expected consumption growth. The mechanism linking global diversification to growth is an attendant world portfolio shift from safe low-yield capital to riskier high-yield capital. The presence of these two types of capital captures the idea that growth depends on the availability of an ever-increasing array of specialized, hence inherently risky, production inputs. |
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