A provincial view of consumption risk sharing in Korea:Asset classes as shock absorbers

•Examine how asset channels impacted consumption risk sharing during two crisis episodes.•Uses a unique provincial data on three asset classes (debt, equity and FDI reinvested earnings).•Employed spatial panel econometric methods.•All asset classes contributed favourably to risk sharing during two crises episodes.•FDI retained earnings robustly positive in contributing to risk sharing.•Asset classes can provide insurance to cushion the economy against adverse shocks. Using a unique data set on provincial net factor income flows disaggregated across the three asset classes of debt, equity and Foreign Direct Investment reinvested earnings in Korea, we investigated how these asset channels impacted consumption risk sharing during the Global Financial Crisis and the European sovereign debt crisis. Adopting spatial panel methods, this study found in the main that net factor flows of debt, equity and Foreign Direct Investment retained earnings have all contributed favourably to consumption risk sharing during these episodes, with Foreign Direct Investment retained earnings robust in its positive contribution in buffering shocks to consumption. These results suggest that one of the alleged benefits of financial integration in terms of providing the insurance needed to cushion the economy against adverse shocks is tangible and real at least in the context of Korea. We also obtain evidence that apart from asset channels, the combination of the government's social transfer payments and a certain measure of labour mobility help to contribute in mitigating shocks to consumption.