Pension funds as fuel for overall investment level and economic growth: An empirical insight from South African economy

Kazeem Abimbola Sanusi,Forget Mingiri Kapingura,Joseph Amankwah-Amoah

doi:10.1080/23311975.2021.1935661

Kazeem Abimbola Sanusi, Forget Mingiri Kapingura + Show 1 more

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https://doi.org/10.1080/23311975.2021.1935661

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Abstract

This study explores the impact of accumulated pension funds on the investment level and economic growth in South Africa using Bayesian Linear Regression (BLR) model. Time series data on Gross Domestic Product (GDP), total official pension funds and gross fixed capital formation (as a proxy for total investment level) from 1990(Q1) to 2019(Q3) were employed. The study makes use of MCMC (Markov Chain Monte Carlo) algorithm to obtain regression model parameters. The empirical findings from Bayesian Linear Regression estimation suggest that the mean effects of pension funds on economic growth and investment level in South Africa are approximately zero. The empirical conclusion is further corroborated by FMOLS results, which show that accumulated pension funds have no significant impact on the overall investment level and economic growth in South African economy. The study recommends that policy makers and the pension funds regulators have to come up with workable means by which pension funds can be invested to significantly benefit the economy; at the same time, ensuring the safety of the invested funds so as not to jeopardize the interest of pension funds owners.

Highlights

Pension funds have increased rapidly over the past decades, perhaps because of population increase and the ever-expanding labour market
The study investigates the impact of accumulated pension funds on the investment level and economic growth in South Africa using the MCMC (Markov Chain Monte Carlo) algorithm to obtain regression model parameters
The empirical conclusion is affirmed by Fully Modified Least Square (FMOLS) results which shows that accumulated pension funds have no significant impact on the overall investment level and economic growth in South African economy

Summary

Introduction

Pension funds have increased rapidly over the past decades, perhaps because of population increase and the ever-expanding labour market. A more recent study on the impact of pension funds on stock market development was carried out by Babalos and Stavroyiannis (2020) They explored the dynamic interaction between stock market development and pension fund investments in equities in 29 OECD countries. They argued that there is significant bidirectional causality between stock market development and pension fund investments in equities Another recent study by Ertuğrul and Gebeşoğlu (2020) investigated the impact of pension funds on national savings in Turkey. The impact of pension funds on stock market development was recently investigated by Babalos and Stavroyiannis (2020) They made use of the dynamic interaction between stock market development and pension fund investments in equities in 29 OECD countries. Robustness check was done by adopting Fully Modified Least Square (FMOLS)

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