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

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. •We consider a small-open, collateral-constrained AK economy.•CARA preferences and uncertainty on capital inflows generates long-term growth.•Long-term growth is entirely driven by precautionary savings.•Growth rate is increasing in the risk magnitude and in the risk aversion parameters.•More financially integrated economies experience lower consumption growth volatility.