Chapter 36 Savings, credit and insurance

This chapter surveys and synthesizes the issues for developing economies. Two features of developing economies are particularly germane to the link between savings and insurance. The absence of markets for trading in risks is particularly noticeable. Many insurance possibilities are not traded in developed countries. The fraction of the population is typically dependent on agricultural income for their livelihood. The chapter studies the life-cycle/permanent income models that incorporate precautionary savings and liquidity constraints. The huge diversity in insurance and credit arrangements in developing countries is quite bewildering. Understanding the limits and potential of these is an important step towards a better appreciation of the factors that influence financial development. The approach suggested in the chapter is two-prongedthe gains from trade exploited by a particular institutional structure can be enquired about along with the way by which trade is sustained.