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Are Funding of Pensions and Economic Growth Directly Linked? New Empirical Results for Some OECD Countries

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  • Gaetano Carmeci

    () (University of Trieste, Dipartimento di Scienze Economiche, Aziendali, Matematiche e Statistiche, Trieste, Italy)

  • Pietro Cavallini

    ()

  • Giovanni Millo

    (Insurance and AM Research at Generali Investments, Trieste)

Abstract

We empirically test on a panel of OECD countries the hypothesis of a direct and positive link between funding of pensions and economic growth, which is based on the idea that richer pension systems can accelerate the development of the financial system and thus promote a more efficient capital allocation. We follow Davis and Hu (2008) in estimating a modified Cobb-Douglas production function where pension fund assets are treated as a shift factor, but in line with the recent econometric literature we control for common global shocks driving per capita outputs. Therefore we adopt a more general approach suitable to the presence of a multifactor error structure. The previous evidence of a long run cointegration relationship between autonomous (or total) pension fund assets and per capita output for our panel of OECD countries is not robust to our augmented specification.

Suggested Citation

  • Gaetano Carmeci & Pietro Cavallini & Giovanni Millo, 2020. "Are Funding of Pensions and Economic Growth Directly Linked? New Empirical Results for Some OECD Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 70(3), pages 244-261, September.
  • Handle: RePEc:fau:fauart:v:70:y:2020:i:3:p:244-261
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    Keywords

    pension funds assets; output growth; common factors; heterogeneous panel; panel cointegration; panel spurious regression;

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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