European Journal of Political Economy xxx (2018) 1–22 Contents lists available at ScienceDirect European Journal of Political Economy journal homepage: www.elsevier.com/locate/ejpe Globalization and international risk-sharing: The role of social and political integration ☆ Faruk Balli a , * , Filippo M. Pericoli b , Eleonora Pierucci c a Massey University, School of Economics and Finance, QB2.47, Auckland, New Zealand b Joint Research Center, European Commission, Ispra, Italy c University of Basilicata, Italy ARTICLE INFO JEL codes: C33 D80 E2 F15 Keywords: International risk-sharing Globalization Social and political integration ABSTRACT This study explores the relationships among various dimensions of globalization (i.e., economic, social, and political) and international risk-sharing, by exploiting the KOF globalization indices over a long time horizon (1970–2014) and for several groups of countries (i.e., World; Organ- isation for Economic Cooperation and Development (OECD); European Union (EU); European Monetary Union (EMU); high-income economies (HI); and low and middle-income economies (LMI)). To this end, we follow a standard regression-based approach augmented by interaction terms. To date, the empirical literature has only investigated the economic and financial facets of globalization; we, on the other hand, find a significant relationship between risk-sharing and noneconomic aspects of globalization. For several groups of industrialized countries, social and political integration positively correlate with risk-sharing. The economic factor does not explain all the improvements that relate to globalization, and political integration plays a remarkable role in shaping risk-sharing opportunities, both among EMU/EU countries and on a global scale. For advanced economies, in an increasingly globalized world, political integration should be of great concern. 1. Introduction This study looks to assess the relationship between the economic and noneconomic aspects of globalization and international risk- sharing, as measured by comovements between idiosyncratic consumption and income. The globalization process is a controversial phenomenon; the economic literature has investigated its consequences on the global economy, and derived various results and conclusions. In a complete markets setting, international risk-sharing is the possibility of a full diversification of idiosyncratic risk—that is to say, countries can (potentially) completely smooth income and consumption across time and states of nature, and thus offset shocks to income and remain affected only by systemic risk. Therefore, theoretical predictions imply that increased market integration brought about by globalization should broaden insurance opportunities and improve risk-sharing. The literature mainly takes into ☆ We thank the participants to: the Annual Conference of European Public Choice Society (EPCS) at University of Frieburg; the International Conference on Globalization and Development at University of Goettingen; the lunch seminar at University of Bergamo. We thank Niklas Potrafke, Kai Gehring, Nabamita Dutta, Michele Meoli and Silvio Vismara for useful discussions. We thank two anonymous reviewers for their invaluable comments on a previous version of this work. All remaining errors are our own responsibility. * Corresponding author. E-mail address: F.Balli@massey.ac.nz (F. Balli). http://dx.doi.org/10.1016/j.ejpoleco.2017.12.006 Received 6 March 2017; Received in revised form 18 December 2017; Accepted 19 December 2017 Available online XXX 0176-2680/© 2018 Elsevier B.V. All rights reserved. Please cite this article in press as: Balli, F., et al., Globalization and international risk-sharing: The role of social and political integration, European Journal of Political Economy (2018), http:/dx.doi.org/10.1016/j.ejpoleco.2017.12.006