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Impact of Pension Privatization on Foreign Direct Investments: A Study of the Latin American Experiment

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  • Reece, Christopher
  • Sam, Abdoul G.
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    Abstract

    We explore the causal effect of market-oriented pension reform on net foreign direct investment (FDI) inflows in Latin America, which has experienced a wave of pension privatization and FDI in the last two decades. With our balanced panel of 17 countries over the 1991-2006 period, we implement fixed effects models, controlling for the endogenous decision to enacted full or partial privatization of the public pension system and several other covariates whose choice is informed by the rich empirical literature on FDI. Our econometric results indicate that privatization triggers a significant increase in net FDI inflows within a year of reform implementation and that the effect does not wane over time. We estimate that privatization increases FDI as a percentage of GDP by between 41 and 47%, ceteris paribus.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado with number 61206.

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    Date of creation: 2010
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    Handle: RePEc:ags:aaea10:61206

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    Keywords: Pension Privatization; Foreign Direct Investments; Latin America; International Development; International Relations/Trade;

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    1. Kolstad, Ivar & Villanger, Espen, 2008. "Determinants of foreign direct investment in services," European Journal of Political Economy, Elsevier, vol. 24(2), pages 518-533, June.
    2. Catalan, Mario & Impavido, Gregorio & Musalem, Alberto R., 2000. "Contractual savings or stock market development - Which leads?," Policy Research Working Paper Series 2421, The World Bank.
    3. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, vol. 54(1), pages 89-113.
    4. Raymond Vreeland, James, 2002. "The Effect of IMF Programs on Labor," World Development, Elsevier, vol. 30(1), pages 121-139, January.
    5. de Janvry, Alain & Finan, Frederico & Sadoulet, Elisabeth & Vakis, Renos, 2006. "Can conditional cash transfer programs serve as safety nets in keeping children at school and from working when exposed to shocks?," Journal of Development Economics, Elsevier, vol. 79(2), pages 349-373, April.
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