Pension Reform, Financial Market Development, and Economic Growth: Preliminary Evidence From Chile

IMF Working Papers, August 1, 1996

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Pension Reform, Financial Market Development, and Economic Growth: Preliminary Evidence From Chile

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Bibliographic details

• Authors: Robert Holzmann
• Published: August 1, 1996
• Series: IMF Working Papers

Summary

• The Chilean pension reform of 1981 moved Chile from an unfunded to a funded scheme and is considered to have contributed to the country’s economic performance since the mid-1980s.
• The paper highlights theoretical underpinnings of the claimed economic effects and presents empirical data and preliminary econometric testing of conjectured growth, capital formation, and saving effects.
• The empirical evidence is reported as consistent with most of the claims.
• In particular, "the direct impact of financial market development on private saving is found to be negative," which emphasizes the importance of sound fiscal policy and public saving to support the transition.

Key Findings and Evidence

• The reform is linked to improvements in economic performance starting in the mid-1980s.
• Empirical data and preliminary econometric testing are used to assess:
  • growth effects,
  • capital formation effects,
  • saving effects.
• The empirical evidence supports most claims made regarding these effects.
• The notable negative direct impact of financial market development on private saving is highlighted.

Policy Implications

• The negative direct impact of financial market development on private saving "underscores the importance of sound fiscal policy and public saving to support the transition."
• Policy focus implied by the findings:
  • Maintain sound fiscal policy during pension system transitions.
  • Strengthen public saving to offset the negative direct impact on private saving associated with financial market development.