Globalization, government regulation, and country risk: International evidence

Abstract

This paper investigates the risk-sharing and risk-taking effects of multidimensional globalization and government regulation on multifaceted country risk by using a panel data of 77 countries over the period 1984–2015. To gain further insights into this issue, we also examine the roles of banking activities, economic development, and geographic regions on the relationship between globalization, government regulation, and country risk. Our main empirical results show that a higher level of globalization and less restricted government regulation of the financial sector significantly decrease country risks, supporting the risk-sharing hypothesis in our study. In addition, bank performance, bank concentration, and economic development play an essential role as conditional factors to influence the country risk. This finding offers several useful insights for policymakers and researchers.

KEYWORDS:

• Country risk
• globalization
• government regulation
• risk sharing
• panel data

JEL Classifications:

• D81
• G18
• F62
• L51

Acknowledgements

We would like to thank the editor and the anonymous referees for their highly constructive suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The time-fixed effects are not reported to save space. The full estimation table is available upon request.

2 In unreported estimation results, the results of these conditional proxies with financial globalization and political globalization are not too dissimilar to the results in Table 6. The estimation results are available upon request.

3 We also consider the credit, labor, and business regulations as a proxy of government regulation. The estimated results are similar to those presented in Table 7 and available upon request.

4 We report some cases of overall globalization and entry barriers interacting with conditional proxies, and the estimation results of control variables are unreported in Table 11 to save space. All robustness estimation results are available upon request.

5 The estimation results of the low-income group are not reported in Table 13 to save space. These results are somewhat similar to the results of the middle-income group. The results are all available upon request.

Additional information

Funding

This work was supported by The Social Science Foundation of Jiangxi Province of China [grant number 21JL02].