Project Details
Projekt
Country Insurance across 200 Years: the Role of Experiences and Expectations
Applicant
Professor Dr. Christoph Trebesch
Subject Area
Economic and Social History
Economic Policy, Applied Economics
Economic Policy, Applied Economics
Term
from 2015 to 2023
Project identifier
Deutsche Forschungsgemeinschaft (DFG) - Project number 275346074
In this proposal we build on the results of Phase 1 but shift the focus to experiences and expectation formation at the country level. Specifically, we contribute to the Priority Program by studying how historical experiences (“disaster shocks”) shape the expectations of governments regarding future disasters and thereby their willingness to insure against such risks (“country insurance”). Our main hypothesis is that disasters encourage governments to take more precautionary measures going forward, either in the form of self-insurance (hoarding of reserves) or by engaging in international financial cooperation and risk-sharing (e.g. through organizations such as the International Monetary Fund).To test this hypothesis, we first construct two ambitious new datasets that quantify disasters and country insurance patterns worldwide and over the past two centuries. In Paper 1, we measure disasters in a new, comprehensive way that combines (i) financial crises, (ii) wars and conflicts as well as (iii) natural disasters, famines and epidemics. In Paper 2, we compile a database that quantifies the size and evolution of the “Global Financial Safety Net” since 1800, covering multilateral and regional financial institutions worldwide, central bank swap and credit line networks, and government-to-government lending flows.In part two of the project, we use the data gathered in part one to study the determinants of country insurance, in particular via official (rescue) lending and financial risk-sharing. Paper 3 takes an ex-ante perspective and asks: do disasters induce countries to self-insure or share risks with other countries? To address this question, we construct a long-run “Official Risk Sharing” (ORS) Index, measuring the amount of official foreign funds that a country can potentially access due to its membership in bilateral, regional or global financial arrangements, meaning the potential size of rescue funds that could be drawn in case of a future crisis). This index will then be used as the main dependent variable in a panel regression analysis, with disaster experiences as the main explanatory variable. We complement this analysis with Paper 4, which takes an ex-post perspective and asks: when a crisis hits, who lends to whom and why? For this purpose, we focus on observable official loans extended between creditor and debtor countries during disasters. Methodologically, we use a gravity model of bilateral lending to explain the size and direction of sovereign bailouts. In particular, we want to test for the role of government expectations about contagion and spillover effects from crisis countries.Taken together, the project will provide the first rigorous “big picture” analysis of international financial cooperation and country insurance across eras and countries, and with a focus on experiences and expectations.
DFG Programme
Priority Programmes
International Connection
USA
Cooperation Partner
Professorin Carmen Reinhart, Ph.D.
