DP2264 On The Optimality of Risk-Sharing in Growth Models: The Role of Education

Author(s):	Gianluca Femminis
Publication Date:	October 1999
Keyword(s):	Education, Endogenous Growth, Human Capital, Risk-Sharing
JEL(s):	F40, O41
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=2264

While the "risk amelioration" literature suggests that risk sharing channels savings into risky but productive technologies and hence favours growth, models focused on precautionary savings reverse this conclusion. We solve, by means of numerical techniques, a model based on human capital accumulation through education, and we find that the increase in precautionary savings makes labour more productive in the goods sector and draws resources from education, which is the "growth leading" activity. Hence, we establish a result favourable to financial integration, even in a model where precautionary savings play an important role.