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

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.

Keywords

• pension funds
• economic growth
• investment
• bayesian linear regression
• fully modified ordinary least square