Aggregate risk hits an economy in its entirety and cannot be reduced through diversification. The extent to which such aggregate, non-diversifiable risks are present evolves over time and is itself affected by technology and institutional development. Organisational and technological progress since the Early Modern Period originated several waves of international economic integration on a hitherto unknown scale. As a consequence, the transmission of international shocks to previously sheltered national and regional economies became common. On the other hand, increase integration created previously unknown opportunities for international risk sharing. Economies that had previously lived in autarky were now no longer restrained by local harvest fluctuations, limited production possibilities, and insufficient market size. Instead, by opening themselves to the world market they could benefit from its implicit insurance mechanisms.
This subproject aims to identify and measure the determinants of aggregate risk in the long term and their evolution during the historical process of globalization. The subproject undertakes research in three areas. The first is an analysis of reduced mortality risk since the 18th century. The intention is to analyze and simulate its effects on the beginning of sustained economic growth within a dynamic stochastic general equilibrium framework. The second area concerns the evolution of international risk sharing in the long term. The aim is to identify common international risk factors and to quantify their effects by means e.g. of dynamic factor analysis. The third area of this subproject examines political reponses to the process of globalization, where the aim is to identify the possible endogeneity of international risk structures to national economic policies.