engleski

The Interdependence of Pension Funds, Economic Growth of the Country and Development of the Domestic Capital Market

Given that the Croatian capital market is still relatively underdeveloped, as well as most capital markets in the countries of eastern and south-eastern Europe, the existence of institutional investors should encourage its more dynamic development. The Croatian capital market was even more modest when mandatory pension insurance based on individual capitalized savings was introduced in 2002. Since then, pension funds have become increasingly important players in the Croatian capital market. Data from the Croatian Financial Services Supervisory Agency for January 2019 show that total net assets of mandatory pension funds increased to HRK 99.7 billion. This amount makes them the largest investor in the domestic market. But the question arises whether their existence had a positive impact on the rest of the market in aspects such as market depth, market liquidity and market volatility. Therefore, one of the goals of this paper is to examine this problem. Furthermore, due to the underdeveloped financial markets, the Croatian economy has been strongly linked to banks as the main source of financing. Seventeen years ago, however, the introduction of mandatory pension insurance based on individual capitalized savings created new actors on the Croatian capital market - pension funds - which could invest their resources in domestic companies through various capital market instruments. This wider choice of funding sources could raise the competitiveness and progress of Croatian companies thus accelerating economic growth and development of the country. The question arises whether pension funds have positively impacted country's economic progress, measured as the change in gross domestic product, by their investments. Examination of this problem is the second goal of this paper. For the purpose of examining these issues, a descriptive and explicative analysis will be needed to determine how pension funds as institutional investors have influenced the development of the Croatian capital market and whether and how pension funds impacted country's economic progress. The former research conducted in different countries did not lead to the clear conclusion whether the new non-banking source of funding raised competitiveness and progress of companies thus leading to accelerated economic growth and country's development. In order to examine these hypotheses in the Croatian example, apart from the descriptive statistical method, regression models will be applied as they are suggested by foreign authors who have been investigating this topic in their papers.

pension funds, economic growth, capital markets development, Croatia

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