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

Analyses of pension funding effects on economic growth should differentiate between ‘carve-out’ 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 East...

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Bibliographic Details
Published inJournal of pension economics & finance Vol. 17; no. 1; pp. 46 - 84
Main Authors ALTIPARMAKOV, NIKOLA, NEDELJKOVIĆ, MILAN
Format Journal Article
LanguageEnglish
Published Cambridge, UK Cambridge University Press 01.01.2018
Subjects
Capital markets
Containment
Cost control
Developing countries
Econometrics
Economic growth
Economic models
Emerging markets
External debt
Financial sustainability
Financing
Funding
GDP
Gross Domestic Product
LDCs
Pension funds
Pension plan funding
Pension plans
Privatization
Public finance
Reforms
Savings
Securities markets
Eastern Europe
Latin America
O57
E62
Pension funding
economic growth
H55
national saving
emerging economies
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Summary:Analyses of pension funding effects on economic growth should differentiate between ‘carve-out’ 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.
ISSN:1474-7472
1475-3022
DOI:10.1017/S1474747216000160