THE EFFECT OF PENSION FUNDS ON THE GROWTH OF NIGERIAN ECONOMY

Abstract

This work evaluates the effects of pension funds on the growth of Nigerian economy. Pension funds are ranked among the largest institutional investors in developed countries by assets under management. According to the Organization for Economic Cooperation and Development (OECD), pension funds assets in six of the non-emerging OECD countries amounted to $8.5 trillion in 2001. Thus the main thrust of this study is to analyze the role of pension funds as an institutional investor on emerging market for the period 1970-2010 using Nigeria as a case study. The data used in this study are time series. A stationary test was conducted to know their various levels of stationary (levels of integration). Ordinary Least Square (OLS) was later conducted based on the data derived after this test. This is because the data of the variables were stationary at both levels and at difference. During the cause of the estimation and analysis, it was discovered that the major determinants of real GDP is the physical capital of the economy. It therefore suggests that the federal government should aim at proving more capital which will increase the level of growth in the country. It was also discovered that there was an insignificant relationship between pension funds and economic growth. This could be attributed to the poor economic conditions, unstable financial sector, lack of commitments on the part of the government, high rate of corruption and lack of trust worthiness within the system which could be corrected if proper policies are put in place and been fully implemented. Investment portfolios of pension funds should also be diversified towards private and international instruments in order to reduce risk. Also, pension reforms should needs to be complemented with other reforms in the economy such as social security, labour market and financial sector in order to have an overall effect on the economy. Finally, policies should be formulated towards the integration of the defined benefits and defined contributions plan and work towards institutionalizing the multi-pillar system of the economy.