Projections of the Impact of Pension Funds on Investment in Infrastructure and Growth in Latin America

77 Pages Posted: 26 Jul 2015

See all articles by Javier Alonso

Javier Alonso

Grupo Banco Bilbao Vizcaya Argentaria (BBVA) - Research Department

Jasmina Bjelic

Independent

Carlos Herrera

Independent

soledad hormazabal

Grupo Banco Bilbao Vizcaya Argentaria (BBVA) - Research Department

Ivonne Ordoñez

Independent

Carolina Romero

World Bank

David Tuesta

BBVA Research

Alfonso Ugarte

Independent

Date Written: January 1, 2010

Abstract

This research study has various objectives. First, to highlight the importance of investment in infrastructure on economic growth. Second, to underscore the need for a competitive and transparent process to implement these investments, which must be aimed at efficiency and obtaining a proper balance between private and social benefits. Third, to identify the potential of pension funds as a flow of resources that can be channeled toward the development of infrastructure. And finally, to quantify the impact that the destination of these funds could have on the long-term growth projections of a country. To this end, we conducted an experiment to calculate per capita GDP growth in Latin America if the share of pension fund portfolios in assets related with direct infrastructure investment was increased. For this, we compared an inertial scenario (taking into account the current diversification of portfolios), versus one in which these were increased toward a higher level, in accordance with the regulatory framework of each country. These scenarios are incorporated in an expanded neoclassical growth model, in which GDP depends on the accumulation of traditional factors, plus the introduction of the infrastructure capital stock, which depends in part on the contributions of pension funds. The results of the model show substantial improvements in infrastructure investment and per capita GDP in Peru and Chile by more than 3% by 2050, and by 1.1% in the case of Mexico, and 2.16% in Colombia. The results of this study gives new light to the double importance that pension fund investment in infrastructure might have, generating a complementary relation between the objectives of the pension industry in providing workers with a profitable portfolio with limited risks, and at the same time generating an important contribution to growth in the country, which in the end would result in a greater development of pension funds, in brief, a virtuous circle that is necessary to strengthen.

Keywords: pensions, social security, infrastructure, Latin America

JEL Classification: H55, H75, J32, H54, O18

Suggested Citation

Alonso, Javier and Bjelic, Jasmina and Herrera, Carlos and hormazabal, soledad and Ordoñez, Ivonne and Romero, Carolina and Tuesta, David Alfredo and Ugarte, Alfonso, Projections of the Impact of Pension Funds on Investment in Infrastructure and Growth in Latin America (January 1, 2010). Available at SSRN: https://ssrn.com/abstract=2019042 or http://dx.doi.org/10.2139/ssrn.2019042

Javier Alonso

Grupo Banco Bilbao Vizcaya Argentaria (BBVA) - Research Department ( email )

Paseo de Recoletos, 10
Madrid
Spain

Jasmina Bjelic

Independent ( email )

Carlos Herrera

Independent ( email )

Soledad Hormazabal

Grupo Banco Bilbao Vizcaya Argentaria (BBVA) - Research Department ( email )

Paseo de Recoletos, 10
Madrid
Spain

Ivonne Ordoñez

Independent ( email )

Carolina Romero

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

David Alfredo Tuesta (Contact Author)

BBVA Research ( email )

Paseo de Recoletos, 10
Madrid
Spain

Alfonso Ugarte

Independent ( email )

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
55
Abstract Views
1,477
rank
458,758
PlumX Metrics