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Pension reform and capital markets : are there any (hard) links?

  • Walker, Eduardo
  • Lefort, Fernando

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.

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Paper provided by The World Bank in its series Social Protection Discussion Papers with number 24082.

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Date of creation: 28 Feb 2002
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Handle: RePEc:wbk:hdnspu:24082
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  1. : Klaus Schmidt-Hebbel, 1998. "Does Pension Reform Really Spur Productivity, Saving, and Growth?," Working Papers Central Bank of Chile 33, Central Bank of Chile.
  2. Morande, Felipe G., 1998. "Savings in Chile. What went right?," Journal of Development Economics, Elsevier, vol. 57(1), pages 201-228, October.
  3. Olivia S. Mitchell & Flavio Ataliba Barreto, 1997. "After Chile, What? Second-Round Pension Reforms in Latin America," NBER Working Papers 6316, National Bureau of Economic Research, Inc.
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  7. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
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  9. Pierre-Richard Agenor & Joshua Aizenman, 1998. "Volatility and the Welfare Costs of Financial Market Integration," NBER Working Papers 6782, National Bureau of Economic Research, Inc.
  10. Philip Arestis & Panicos O. Demetriades & Kul B. Luintel, 1997. "Financial Development and Economic Growth: the Role of Stock Markets," Keele Department of Economics Discussion Papers (1995-2001) 97/05, Department of Economics, Keele University.
  11. Zvi Bodie, 1989. "Pension Funds and Financial Innovation," NBER Working Papers 3101, National Bureau of Economic Research, Inc.
  12. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "Personal Retirement Saving Programs and Asset Accumulation: Reconciling the Evidence," NBER Working Papers 5599, National Bureau of Economic Research, Inc.
  13. Robert Holzmann, 1996. "Pension Reform, Financial Market Development, and Economic Growth; Preliminary Evidence From Chile," IMF Working Papers 96/94, International Monetary Fund.
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  15. Hans J. Blommestein, 1997. "Institutional Investors, Pension Reform, and Emerging Securities Markets," Research Department Publications 4094, Inter-American Development Bank, Research Department.
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  17. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 1999. "A new database on financial development and structure," Policy Research Working Paper Series 2146, The World Bank.
  18. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
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  20. Arrau, Patricio, 1990. "Social security reform : the capital accumulation and intergenerational distribution effect," Policy Research Working Paper Series 512, The World Bank.
  21. 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.
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  23. Fernando Lefort & Klaus Schmidt-Hebbel, 2002. "Indexation, Inflation and Monetary Policy: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.), Indexation, Inflation and MOnetary Policy, edition 1, volume 2, chapter 1, pages 001-018 Central Bank of Chile.
  24. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  25. Rousseau, Peter L & Wachtel, Paul, 1998. "Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 657-78, November.
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