Journal of Finance and Investment Analysis

An Empirical Investigation of the Relationship Between Pension Fund Reforms and Financial Sector Development in Botswana

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• Abstract

  Policy makers and governments are continually seeking means of incalculating sustainable development and growth in capital markets. There is increasing evidence that financial reform is a potent mechanism in achieving capital market development and growth. In 2014, the largest pension fund in Botswana (BPOPF) engaged an investment strategy that drastically changed the flow of capital finance in the local economy. The eventual impact of such a financial reform has largely remained a matter for speculation, hence the motivation for this study. The objective of the study is to explore the impact of changes in pension fund investment policy on wider economic indicators. Financial Sector Development was measured using four key variables and Pension Fund Reform was measured using the pension fund investment portfolio in the Botswana Stock Exchange. The results indicated that the hypothesis of a relationship between pension fund reforms and financial sector development is partially supported. In this regard, the study findings confirm the significant role played by financial reforms in economic development and capital markets growth, despite the short implementation timeframe in the Botswana context.

  JEL classification numbers: E22; G28; G18; G23
  Keywords: Pension fund, Financial sector development, Reforms, Stock market, Gross domestic product (GDP)