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Liberalising Foreign Investments by Pension Funds: Positive and Normative Aspects

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Helmut Reisen ()

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Abstract

The paper evaluates the economics of foreign investment regulation for pension funds, with a focus on developing countries, where fully-funded pension systems are being started de novo. The analysis produces three observations. First, the benefits of global portfolio diversification apply particularly to developing-country pension assets because the volatility of asset returns is high while the risk tolerance of pensioners is low. Second, restrictions of foreign investment by domestic pension funds can hardly be justified on grounds of financial-development arguments: cross-country evidence which little support for the claim that the accumulation of pension assets would provide strong externalities for financial development. Moreover, the home bias generally observed in pension fund investment should translate into sufficient potential demand for domestic financial assets so as to deepen markets and develop the institutional infrastructure. Third, a case for initial localisation ...


Ce document évalue l’économie de la réglementation des investissements à l’étranger des caisses de retraite, notamment pour les pays en développement (PED) où les systèmes de retraite par capitalisation sont récents. L’analyse conduit à trois observations. Premièrement, elle montre que les produits d’épargne retraite des PED peuvent tout particulièrement bénéficier d’une diversification des portefeuilles au niveau mondial ; en effet, les rendements des actifs sont très volatils alors que les retraités sont très vulnérables. Deuxièmement, l’argument du développement financier peut difficilement justifier les limitations à l’investissement étranger par les fonds de pension nationaux : cette étude internationale ne confirme pas vraiment l’idée selon laquelle l’accumulation de produits d’épargne retraite conduirait à des retombées positives importantes pour le développement financier. De plus, le biais national généralement observé dans les investissements de caisses de retraite ...

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Paper provided by OECD Development Centre in its series OECD Development Centre Working Papers with number 120.

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Date of creation: Jan 1997
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Handle: RePEc:oec:devaaa:120-en

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  1. John B. Williamson, 2002. "Privatizing Public Pension Systems: Lessons For The United States From Latin America," Working Papers, Center for Retirement Research at Boston College 1999-03, Center for Retirement Research. [Downloadable!]
  2. Vittas, Dimitri, 1998. "The role of non-bank financial intermediaries (with particular reference to Egypt)," Policy Research Working Paper Series 1892, The World Bank. [Downloadable!]
  3. Vittas, Dimitri, 1998. "Regulatory controversies of private pension funds," Policy Research Working Paper Series 1893, The World Bank. [Downloadable!]
  4. Eduardo Siandra, 1999. "La inversión extranjera de los fondos de pensiones y el desarrollo del mercado de capitales doméstico," Documentos de Trabajo (working papers) 0599, Department of Economics - dECON. [Downloadable!]
  5. Impavido, Gregorio & Musalem, Alberto R. & Vittas, Dimitri, 2002. "Contractual savings in countries with a small financial sector," Policy Research Working Paper Series 2841, The World Bank. [Downloadable!]
  6. Eduardo Siandra, 1998. "Sistemas de pensiones, sus reformas y los mercados de capitales," Documentos de Trabajo (working papers) 0299, Department of Economics - dECON. [Downloadable!]
  7. Vittas, Dimitri, 1998. "Institutional investors and securities markets : which comes first?," Policy Research Working Paper Series 2032, The World Bank. [Downloadable!]
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