Risk-sharing and growth: The role of precautionary savings in the "education" model

While the "risk amelioration" literature suggests that risk-sharing channel s 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 accumulati on through education, and find that the increase in precautionary savings m akes labour more productive in the goods sector and draws resources from ed ucation, which is the "growth leading" activity. Hence, we establish a resu lt favourable to financial integration, even in a model where precautionary savings play an important role.