Not all Shocks are Shared Equally: Commodity Exporters and International Risk Sharing

Using world-commodity prices as an instrument, we propose a novel method for decomposing channels of international risk sharing for commodity-exporting countries. We identify the commodity “sector” as the projection of GDP growth on commodity price growth and the non-commodity “sector” as its orthogonal complement. We find that commodity price risk is shared significantly more than other risk in resource-rich countries. Shocks to GDP are smoothed via pro-cyclical savings, especially government savings, and counter-cyclical international factor income. Risk sharing from government savings is stronger at shorter than at longer time horizons.