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Pension reform and capital market development -"feasibility"and"impact"preconditions

Author

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  • Vittas, Dimitri
Abstract
The link between pension reform, and capital market development, has become a perennial question, raised every time the potential benefits, and pre-conditions of pension reform are discussed. The author asks two questions. First, what are the basic"feasibility"pre-conditions for the successful launch of a pension reform program? And second, what are the necessary"impact"pre-conditions for the realization of the potential benefits of funded pension plans for capital market development? His main conclusion is that the feasibility pre-conditions, are not as demanding as is sometimes assumed. In contrast, the impact pre-conditions are more onerous. The most import feasibility pre-condition is a strong, and lasting commitment of the authorities to maintaining macroeconomic, and financial stability, fostering a small core of solvent, and efficient banks, and insurance companies, and creating an effective regulatory, and supervisory agency. Opening the domestic banking, and insurance markets to foreign participation, can easily fulfill the second requirement. The main impact pre-conditions include the attainment of critical mass; the adoption of conducive regulations, especially on pension fund investments; the pursuit of optimizing policies by the pension funds; and, a prevalence of pluralistic structures. The author argues that pension funds are neither necessary, nor sufficient for capital market development. Other forces, such as advances in technology, deregulation, privatization, foreign direct investment, and especially regional, and global economic integration, may be equally important. But pension funds are critical players in"symbiotic"finance, the simultaneous and mutually reinforcing presence of many important elements of modern financial systems. They can support the development of factoring, leasing, and venture capital companies, all of which specialize in financing new, and expanding small firms.

Suggested Citation

  • Vittas, Dimitri, 2000. "Pension reform and capital market development -"feasibility"and"impact"preconditions," Policy Research Working Paper Series 2414, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2414
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    References listed on IDEAS

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    3. Vittas, Dimitri, 1998. "Regulatory controversies of private pension funds," Policy Research Working Paper Series 1893, The World Bank.
    4. Salvador Valdés & Rodrigo Cifuentes, "undated". "Previsión Obligatoria para Vejez y Crecimiento Económico," Documentos de Trabajo 131, Instituto de Economia. Pontificia Universidad Católica de Chile..
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    Citations

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    Cited by:

    1. Reece, Christopher & Sam, Abdoul G., 2012. "Impact of Pension Privatization on Foreign Direct Investment," World Development, Elsevier, vol. 40(2), pages 291-302.
    2. Musalem, Alberto R. & Impavido, Gregorio & Tressel, Thierry, 2001. "Contractual savings, capital markets, and firms'financing choices," Policy Research Working Paper Series 2612, The World Bank.
    3. Bofelo Warona Mokgadi & Simangaliso Biza-Khupe, 2018. "An Empirical Investigation of the Relationship Between Pension Fund Reforms and Financial Sector Development in Botswana," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 7(2), pages 1-3.
    4. Nassios, Jason & Giesecke, James A. & Dixon, Peter B. & Rimmer, Maureen T., 2019. "Mandated superannuation contributions and the structure of the financial sector in Australia," Journal of Policy Modeling, Elsevier, vol. 41(5), pages 859-881.
    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.
    6. Roger Charlton & Roddy McKinnon, 2002. "International organizations, pension system reform and alternative agendas: Bringing older people back in?," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(8), pages 1175-1186.
    7. Impavido, Gregorio & Musalem, Alberto R. & Tressel, Thierry, 2001. "Contractual savings institutions and banks'stability and efficiency," Policy Research Working Paper Series 2751, The World Bank.
    8. 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.
    9. de Menil, Georges, 2005. "Why should the portfolios of mandatory, private pension funds be captive? (The foreign investment question)," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 123-141, January.
    10. World Bank, 2004. "Republic of Tunisia : Strategy for Public Debt Management," World Bank Publications - Reports 14673, The World Bank Group.
    11. 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.
    12. World Bank, 2005. "Benin : Financial Sector Review," World Bank Publications - Reports 8300, The World Bank Group.
    13. Yu-Wei Hu, 2006. "China's Pension Reform: A Precondition Approach," Global Economic Review, Taylor & Francis Journals, vol. 35(4), pages 413-424.
    14. Alicia García Herrero & Javier Santillán & Sonsoles Gallego & Lucía Cuadro & Carlos Egea, 2002. "Latin American Financial Development in Perspective," Working Papers 0216, Banco de España.
    15. Zalewska, Anna, 2006. "Is locking domestic funds into the local market beneficial? Evidence from the Polish pension reforms," Emerging Markets Review, Elsevier, vol. 7(4), pages 339-360, December.
    16. Vittas, Dimitri, 2002. "Policies to promote saving for retirement : a synthetic overview," Policy Research Working Paper Series 2801, The World Bank.
    17. Gazmore Rexhepi & Burim Gashi, 2022. "The Role of Pension Funds on Capital Market Growth in the New EU Member States," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 4, pages 437-454.
    18. World Bank, 2004. "Republic of Tunisia - Development Policy Review : Making Deeper Trade Integration Work for Growth and Jobs," World Bank Publications - Reports 15693, The World Bank Group.
    19. Anna Zalewska, 2005. "Home bias and stock market development. The Polish experience," The Centre for Market and Public Organisation 05/136, The Centre for Market and Public Organisation, University of Bristol, UK.
    20. Vittas, Dimitri, 2004. "Insurance regulation in Jordan : New rules--old system," Policy Research Working Paper Series 3298, The World Bank.
    21. Federico Escobar & Osvaldo Nina, 2004. "Pension Reform in Bolivia: A Review of Approach and Experience," Development Research Working Paper Series 04/2004, Institute for Advanced Development Studies.

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