The Impact of Pension Funds on Capital Markets:The Mechanism and Conditions (in Korean)

This paper analyzes the mechanism and conditions whereby pension funds contribute to the development of capital markets. For the first of these, it has been argued that the accumulation of pension funds in a competitive pension fund industry promotes the co-evolution of the domestic capital market and real sector by facilitating investments in risky assets and economy-of-scale projects, thus internalizing their pecuniary external effects. As for the latter it has been argued that fulfillment of a 'scale condition' for the pension fund industry as a whole relative to the economy and an 'institutional precondition' regarding pension fund investment will suffice for such an effect to hold. Results from empirical analyses confirm the 'externality hypothesis' for the group of Anglo-Saxon countries, but not for the group of Continental European countries and Japan. It has been argued that the difference between the two regimes stems from the differences in the degrees to which the two preconditions are fulfilled. These results support the argument that achieving a critical mass of pension funds and securing the working of the market mechanism in the pension fund industry represent a (necessary and) sufficient condition for pension reform to succeed as well as to contribute to the development of domestic capital markets.