Is there a Link Between Pension-Fund Assets and Economic Growth? - A Cross-Country Study

Pension fund assets have increased markedly during recent decades, and there are signs that this trend will continue, particularly given demographic changes and the current pattern of pension reform towards funded systems. However, research on the extent to which growth in pension assets contributes directly to economic growth is quite scarce. This is surprising since superiority of funding to pay-as-you-go links notably to the question whether funding improves economic performance sufficiently to generate the resources required to meet the needs of an ageing population. In this paper, we design a modified Cobb-Douglas production function with pension assets as a shift factor. We then employ a dataset covering 38 countries to investigate the direct link between pension assets and economic growth, using a variety of appropriate econometric methods. We find positive results for both OECD countries and Emerging Market Economies (EMEs), with some evidence for a larger effect for EMEs than OECD countries.