World betas, consumption growth, and financial integration

We define a country’s beta as the covariance of domestic consumption growth with world consumption growth scaled by the world’s variance. Beta is related to a country’s risk-taking position in models of international financial integration. Empirically, we find that an increase in beta leads to an increase in average consumption growth. This beta-growth relationship is present only among countries with high levels of financial openness, and is absent among the rest. However, we cannot fully discard the presence of non-financial factors (e.g., trade openness) as determinants of the beta-growth relationship.