Can Investments in Emerging Markets Help to Solve the Ageing Problem?

Abstract

Pre-funding of pension commitments in OECD economies is increasingly seen as a central strategy to cope with the ageing of their populations. This paper argues that investments in emerging markets can help at the margin, but are unable to solve the demographic problem. While these investments bring potential advantages through enhanced risk diversification, higher rates of return, and accelerated financial market development, the total effects are likely to be limited. Furthermore, in order to harvest them, capital sending and receiving countries must fulfill various politically and economically challenging requirements. For pension policy, the limited con tribution ofpre-funding at home and abroad in order to address the demo graphic problem implies that enhanced emphasis must be given to domestic reforms.

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