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

E Philip Davis and Yuwei Hu


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.

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