Does pension privatization increase economic growth? Evidence from Latin America and Eastern Europe

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Analyses of pension funding effects on economic growth need to differentiate between 'carveout' pension privatization in Latin America and Eastern Europe and typical 'add-on' pension funding in Western Europe and North America. We find no evidence that pension privatization in Latin America and Eastern Europe was associated with higher economic growth. The result is robust across both continents and several alternative econometric specifications. Positive growth effects are particularly unlikely in countries resorting to debt-financed privatization. Furthermore, we note the lack of positive pension privatization effects on savings in Eastern Europe, with limited evidence of positive savings effects in Latin America. These findings suggest that cost-containment parametric reforms should be given priority over carve-out pension privatization when considering options for restoring financial sustainability of public Pay-As-You-Go systems. Terms of use: Documents inJEL-Codes: J320, G280, H550, C230.

Old-age provision in transition: the case of Croatia

“…4.3; Kąsek et al ., 2008: ch. 1; or Altiparmakov and Nedeljkovic, 2016), and the same applies to the Social Security Trust Fund in the USA. However, depending on whether government bonds are absorbed that would have been issued anyway or whether public debt is expanded, this can actually undermine the strategy of partially pre-funding future retirement income (and may also reduce the rate of return earned in the funded scheme).…”

“…The Croatian pension system is in a particularly difficult situation, as it combines a number of problems, which are present also in other transition countries in Central and Eastern Europe, among them several EU member countries. Its institutional set-up is similar to that in the Baltic states, Bulgaria, Hungary, Poland, Romania or the Slovak Republic (Nickel and Almenberg, 2006; Altiparmakov and Nedeljkovic, 2016). Many of these countries showed a weak economic performance in recent years as well (European Commission, DG ECFIN, 2015).…”

The Effects of Private Social Security Accounts on Economic Growth in Eastern Europe

“…The growth of the total amount of pension assets as a share of GDP, and the rate of return of the pension sector, are found to have a highly statistically positive effect on long-term growth of GDP per capita for OECD and non-OECD countries, but for short-term growth only the latter variable shows high statistical significance (Zandberg and Spierdijk 2013). One study finds poor fits and no statistically significant positive effects for the share of carve-out private pensions out of wages on GDP per capita growth in emerging countries of Latin America, Eastern European and Central Asian countries, with a dummy for Eastern Europe (Altiparmakov and Nedeljkovic, 2018).…”

Pension funds and FDI. Is there a link?

“…One should heed the sample selection in analyzing private pension fund impact on the economy. Altiparmakov and Nedeljković (2018) evaluated the link between pension funds' privatization and economic growth in Latin America and Eastern Europe. They found limited evidence of positive growth in Latin America and lack of evidence in Eastern Europe.…”