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Growth and financial liberalization under capital collateral constraints: The striking case of the stochastic AK model with CARA preferences

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  • Boucekkine, R.
  • Fabbri, G.
  • Pintus, P.

Abstract

We consider a small-open, collateral-constrained AK economy. We show that the combination of CARA preferences and uncertainty on capital inflows generates long-term growth while the deterministic counterpart does not: long-term growth is entirely driven by precautionary savings, and the asymptotic growth rate of the expected capital stock is increasing in both the risk magnitude and the Arrow–Pratt absolute risk aversion parameters.

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  • Boucekkine, R. & Fabbri, G. & Pintus, P., 2014. "Growth and financial liberalization under capital collateral constraints: The striking case of the stochastic AK model with CARA preferences," Economics Letters, Elsevier, vol. 122(2), pages 303-307.
    • Handle: RePEc:eee:ecolet:v:122:y:2014:i:2:p:303-307
    DOI: 10.1016/j.econlet.2013.12.009
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    1. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, vol. 84(5), pages 1310-1329, December.
    2. Daniel Cohen & Jeffrey Sachs, 1991. "Growth and External Debt Under Risk of Debt Repudiation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 437-472, National Bureau of Economic Research, Inc.
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    4. Anne Epaulard & Aude Pommeret, 2016. "Financial Integration, Growth and Volatility," Pacific Economic Review, Wiley Blackwell, vol. 21(3), pages 330-357, August.
    5. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2006. "Growth volatility and financial liberalization," Journal of International Money and Finance, Elsevier, vol. 25(3), pages 370-403, April.
    6. Raouf Boucekkine & Giorgio Fabbri & Patrick A. Pintus, 2018. "Short-run pain, long-run gain: the conditional welfare gains from international financial integration," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(2), pages 329-360, March.
    7. Raouf Boucekkine & Patrick Pintus, 2012. "History’s a curse: leapfrogging, growth breaks and growth reversals under international borrowing without commitment," Journal of Economic Growth, Springer, vol. 17(1), pages 27-47, March.
    8. Ayhan Kose, M. & Prasad, Eswar S. & Taylor, Ashley D., 2011. "Thresholds in the process of international financial integration," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 147-179, February.
    9. Steger, Thomas M., 2005. "Stochastic growth under Wiener and Poisson uncertainty," Economics Letters, Elsevier, vol. 86(3), pages 311-316, March.
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    Citations

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    Cited by:

    1. Raouf Boucekkine & Patrick Pintus & Benteng Zou, 2015. "Stochastic stability of endogenous growth:Theory and applications," DEM Discussion Paper Series 15-09, Department of Economics at the University of Luxembourg.
    2. Boucekkine, Raouf & Kazuo, Nishimura & Venditti, Alain, 2017. "Introduction to international financial markets and banking systems crises," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 87-91.
    3. Raouf Boucekkine & Giorgio Fabbri & Patrick A. Pintus, 2015. "Risk Sharing and Growth in Small-Open Economies," AMSE Working Papers 1537, Aix-Marseille School of Economics, France.
    4. Boyan Jovanovic & Sai Ma, 2023. "Growth through learning," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 50, pages 211-234, October.
    5. Boucekkine, Raouf & Pintus, Patrick A. & Zou, Benteng, 2018. "Mean growth and stochastic stability in endogenous growth models," Economics Letters, Elsevier, vol. 166(C), pages 18-24.
    6. Raouf Boucekkine & Benteng Zou, 2014. "Stochastic stability of endogenous growth: The AK case," DEM Discussion Paper Series 14-30, Department of Economics at the University of Luxembourg.
    7. Fabbri, Giorgio, 2017. "International borrowing without commitment and informational lags: Choice under uncertainty," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 103-114.
    8. Raouf Boucekkine & Xianhai Huang, 2016. "Globalization: Financial, Trade and Institutional Aspects with Applications to China," Pacific Economic Review, Wiley Blackwell, vol. 21(3), pages 324-329, August.
    9. Brahim Gaies & Mahmoud‐Sami Nabi, 2021. "Banking crises and economic growth in developing countries: Why privileging foreign direct investment over external debt?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(4), pages 736-761, October.
    10. Ballestra, Luca Vincenzo, 2016. "The spatial AK model and the Pontryagin maximum principle," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 87-94.
    11. Motoh Tsujimura & Hidekazu Yoshioka, 2023. "A robust consumption model when the intensity of technological progress is ambiguous," Mathematics and Financial Economics, Springer, volume 17, number 2, December.

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    More about this item

    Keywords

    Financial liberalization; Growth; CARA preferences; Collateral constraints; Precautionary savings;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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