10 However, smoothing resulting from international cross-ownership of assets remained at low levels. By way of comparison, the United States has traditionally been characterised by a very high degree of income and consumption smoothing across states. Available evidence suggests that about 75% of income shocks in individual states are smoothed, with 62% of state-specific shocks being smoothed through market transactions.
These can take the form of cross regional holdings of financial assets or direct investments, as well as borrowing and lending credit operations. 11 This underlines the advantage of, in the context of CMU, being particularly focused on stimulating equity financing. Indeed, our upcoming report on financial integration 12 finds that debt finance can magnify the adverse impact of negative shocks on economic growth.