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Pension Reform And Capital Markets: Are There Any (Hard) Links?

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  • EDUARDO WALKER

    () (Escuela de Administración, Pontificia Universidad Católica de Chile)

  • FERNANDO LEFORT

    () (Escuela de Administración, Pontificia Universidad Católica de Chile)

Abstract

The creation of fully funded, privately managed pension systems may have significant positive direct effects on savings, growth and welfare. However, the indirect link, via capital market development, may be as important. This hypothesis is verified with evidence from emerging economies that have recently engaged in such reforms with a focus on Chile, Argentina and Peru. There is abundant qualitative and anecdotal evidence that relates pension reform with the accumulation of "institutional capital", with the existence of an adaptive legal framework, with increased specialization, transparency and integrity and even with better corporate governance. Evidence of increased financial innovation is also found while there is little evidence of bank disintermediation. In addition, time-series and panel data evidence is generally consistent with the following hypothetical effects: a reduction in the cost of capital; lower security-price volatility; and higher traded volumes. The evidence suggests that the indirect channel via capital market development may have important implications for economic growth and productivity.

Suggested Citation

  • Eduardo Walker & Fernando Lefort, 2002. "Pension Reform And Capital Markets: Are There Any (Hard) Links?," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 5(2), pages 77-149.
  • Handle: RePEc:pch:abante:v:5:y:2002:i:2:p:77-149
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    References listed on IDEAS

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    Cited by:

    1. Fernando Lefort & Rodrigo Gonzalez, 2008. "Hacia Un Mejor Gobierno Corporativo En Chile," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 11(1), pages 19-45.
    2. de la Torre, Augusto & Schmukler, Sergio, 2011. "Emerging Capital Markets and Globalization: The Latin American Experience," IDB Publications (Books), Inter-American Development Bank, number 349.
    3. de la Torre, Augusto & Gozzi, Juan Carlos & Schmukler, Sergio L., 2007. "Stock market development under globalization: Whither the gains from reforms?," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1731-1754, June.
    4. Robert Holzmann & Richard Hinz, 2005. "Old Age Income Support in the 21st century: An International Perspective on Pension Systems and Reform," World Bank Publications, The World Bank, number 7336, December.
    5. Fernando LEFORT & Eduardo WALKER, 2007. "Do Markets Penalize Agency Conflicts Between Controlling And Minority Shareholders? Evidence From Chile," The Developing Economies, Institute of Developing Economies, vol. 45(3), pages 283-314, September.
    6. Milos Laura Raisa, 2012. "Spillover Effects Of Pension Funds On Capital Markets. The Eu-15 Countries Case," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 164-170, December.
    7. Yu-Wei Hu, 2006. "China's Pension Reform: A Precondition Approach," Global Economic Review, Taylor & Francis Journals, vol. 35(4), pages 413-424.
    8. Jara, Mauricio & López-Iturriaga, Félix & San Martín, Pablo & Saona, Paolo & Tenderini, Giannina, 2019. "Chilean pension fund managers and corporate governance: The impact on corporate debt," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 321-337.
    9. Pinotti Paolo, 2009. "Financial Development and Pay-As-You-Go Social Security," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-21, March.
    10. Kristian Niemietz, 2009. "The Nationalisation Of Retirement Savings Accounts In Argentina," Economic Affairs, Wiley Blackwell, vol. 29(1), pages 49-53, March.
    11. Alda, Mercedes, 2017. "The relationship between pension funds and the stock market: Does the aging population of Europe affect it?," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 83-97.
    12. Independent Evaluation Group, 2006. "Pension Reform and the Development of Pension Systems : An Evaluation of World Bank Assistance," World Bank Publications, The World Bank, number 6956, December.
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    15. Ashok Thomas & Luca Spataro, 2013. "Pension funds and Market Efficiency: A review," Discussion Papers 2013/164, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    16. Juan Gabriel Brida & María Nela Seijas, 2016. "The impact of funded pension schemes in domestic capital markets: evaluating global reforms," Economics Bulletin, AccessEcon, vol. 36(1), pages 493-514.
    17. Velculescu, Delia, 2011. "Private Pension Systems in Emerging Europe: The Uncertain Road Ahead," MPRA Paper 88969, University Library of Munich, Germany, revised 2011.
    18. Pamela Córdova Olivera, 2010. "Contribución del sistema de pensiones privado de capitalización individual al desarrollo del mercado de capitales en Bolivia 1997-2009," Investigación & Desarrollo 0210, Universidad Privada Boliviana, revised Jan 2010.
    19. Carmen Apolzan, 2010. "Central And Eastern European Countries In European Union - Impact Of Foreign Direct Investments," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 692-699, December.
    20. Thomas, Ashok & Spataro, Luca & Mathew, Nanditha, 2014. "Pension funds and stock market volatility: An empirical analysis of OECD countries," Journal of Financial Stability, Elsevier, vol. 11(C), pages 92-103.
    21. Pasali, Selahattin Selsah, 2013. "Where is the cheese ? synthesizing a giant literature on causes and consequences of financial sector development," Policy Research Working Paper Series 6655, The World Bank.
    22. Augusto de la Torre & Sergio L. Schmukler, 2007. "Emerging Capital Markets and Globalization : The Latin American Experience," World Bank Publications, The World Bank, number 7187, September.
    23. Stuart L. Gillan & Laura T. Starks, 2002. "Institutional Investors, Corporate Ownership, and Corporate Governance: Global Perspectives," WIDER Working Paper Series DP2002-09, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Pensions; Reform; Capital markets; Emerging markets; Economic growth;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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