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Liberalising Foreign Investments by Pension Funds: Positive and Normative Aspects

  • Helmut Reisen

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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File URL: http://dx.doi.org/10.1787/030370320363
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Paper provided by OECD Publishing 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. De Gregorio, Jose & Guidotti, Pablo E., 1995. "Financial development and economic growth," World Development, Elsevier, vol. 23(3), pages 433-448, March.
  2. Michael P. Dooley, 1995. "A Survey of Academic Literatureon Controls Over International Capital Transactions," IMF Working Papers 95/127, International Monetary Fund.
  3. Levine, Ross & Zervos, Sara, 1996. "Stock Market Development and Long-Run Growth," World Bank Economic Review, World Bank Group, vol. 10(2), pages 323-39, May.
  4. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Market Development and Financial Intermediaries: Stylized Facts," World Bank Economic Review, World Bank Group, vol. 10(2), pages 291-321, May.
  5. Karen K. Lewis, 1994. "Puzzles in International Financial Markets," NBER Working Papers 4951, National Bureau of Economic Research, Inc.
  6. King, Robert G. & Levine, Ross, 1992. "Financial indicators and growth in a cross section of countries," Policy Research Working Paper Series 819, The World Bank.
  7. Lewis, K.K., 1994. "Puzzles in international Financial Markets," Weiss Center Working Papers 94-7, Wharton School - Weiss Center for International Financial Research.
  8. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  9. Joshua Aizenman & Pablo E. Guidotti, 1990. "Capital Controls, Collection Costs, and Domestic Public Debt," NBER Working Papers 3443, National Bureau of Economic Research, Inc.
  10. Helmut Reisen & John Williamson, 1994. "Pension Funds, Capital Controls and Macroeconomic Stability," OECD Development Centre Working Papers 98, OECD Publishing.
  11. Liliana Rojas-Suárez & Steven R. Weisbrod, 1996. "Building Stability in Latin American Financial Markets," Research Department Publications 4028, Inter-American Development Bank, Research Department.
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