Pension funds and capital market development in Africa: The role of institutional quality

Figures & data

Table 1. Descriptive statistics

Variables	Obs	Mean	Std. Dev.	Min	Max
Stock market capitalization	1318	26.046	23.336	0.01	311.101
Stock market total value	1423	7.802	16.335	0.00	163.32
Government domestic bonds	1447	28.11	46.259	0.00	289.845
Corporate bond issuance	1454	1.135	1.063	−0.783	3.815
Financial development index	1456	0.163	0.115	−0.008	0.616
Financial markets index	1411	0.068	0.122	−0.365	0.583
Financial institutions index	1456	0.254	0.134	0.095	0.769
Pension fund assets	1412	12.26	18.359	0.001	99.66
Institutions avg	988	−0.628	0.588	−2.1	0.88
Inflation consumer price	1262	44.84	699.58	−11.686	23,773.131
Real GDP pc	1390	7.097	1.047	5.102	9.929
Population total	1450	17,100,000	25,000,000	69,507	1.909e+08
Real interest rate	869	10.461	49.649	−93.513	1158.026
Imports of goods and services	1315	39.867	22.248	7.066	236.391
Broad money of GDP	1342	34.54	27.837	.024	251.618
Gross domestic saving	1258	13.555	19.694	−141.974	83.287

Source: Authors own computation

Table 2. Correlation matrix

Variables		VIF	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
(1) Pension funds		1.061	1.000
(2) IQ		1.861	0.028	1.000
			(0.379)
(3) Inflation		1.207	−0.012	−0.082	1.000
			(0.686)	(0.014)
(4) GDP		3.531	0.017	0.372	−0.038	1.000
			(0.540)	(0.000)	(0.184)
(5) Population		1.445	0.207	−0.188	0.032	−0.059	1.000
			(0.000)	(0.000)	(0.255)	(0.027)
(6) Interest rate		1.215	−0.043	−0.131	−0.450	−0.055	−0.033	1.000
			(0.215)	(0.001)	(0.000)	(0.105)	(0.327)
(7) Imports		3.031	−0.159	0.200	−0.029	0.236	−0.321	0.039	1.000
			(0.000)	(0.000)	(0.322)	(0.000)	(0.000)	(0.265)
(8) Broad money		2.027	−0.048	0.304	−0.041	0.431	0.022	−0.033	0.299	1.000
			(0.082)	(0.000)	(0.162)	(0.000)	(0.427)	(0.346)	(0.000)
(9) Savings		3.725	0.033	0.073	−0.007	0.593	0.162	−0.115	−0.315	0.014	1.000
			(0.242)	(0.031)	(0.816)	(0.000)	(0.000)	(0.001)	(0.000)	(0.633)
Mean VIF		2.123

Stock Market is given by Stock Market capitalization as a % of GDP, Pension Funds is given by Pension fund asset to GDP, IQ is the aggregate of the six indicators from the World Governance Indicators, namely, rule of law, government effectiveness, control of corruption, political stability, regulatory quality and voice and accountability. Inflation is the consumer price index, population refers to the total population, interest rates are real as a % of GDP, Imports is imports of goods and services as a % of GDP, Savings are gross national savings divided by GDPSource: Authors own computation

Table 3. System GMM Estimation

	Stock Market		Bond Market		Financial Market
	Stock market capitalization	Stock market to GDP	Government domestic bond to GDP	Corporate Bond to GDP	Financial Development Index	Financial Market Index	Financial Institution Index
VARIABLES	model 1	model 2	model 3	model 4	model 5	model 6	model 7
Pension funds	−0.109	−0.0759	−0.180*	0.00722***	0.000864**	0.000590**	0.000814*
	(0.0835)	(0.0576)	(0.102)	(0.00114)	(0.000316)	(0.000266)	(0.000423)
IQ	−4.192**	0.222	−22.67***	−0.109*	0.0768***	0.0648***	0.0908***
	(1.481)	(1.035)	(4.142)	(0.0606)	(0.00610)	(0.00883)	(0.00819)
Inflation	−0.0336	−0.0721***	0.131	−0.00107	−4.08e-05	0.000278*	−0.000259
	(0.0252)	(0.0247)	(0.201)	(0.00179)	(0.000172)	(0.000152)	(0.000245)
GDP	0.208	1.712	−4.818	−0.0235	0.0159***	0.0296***	0.00493
	(0.959)	(1.347)	(3.435)	(0.0699)	(0.00522)	(0.00609)	(0.00579)
Population	−2.99e-08*	1.92e-08	2.03e-07***	−4.58e-09**	−5.31e-11	−1.82e-10	1.19e-10
	(1.51e-08)	(1.63e-08)	(4.86e-08)	(1.74e-09)	(1.30e-10)	(1.27e-10)	(1.98e-10)
Interest rate	0.0270	0.00645	0.762*	0.00401	−0.000651	0.000441	−0.00131
	(0.0493)	(0.0964)	(0.372)	(0.00276)	(0.000749)	(0.000478)	(0.000873)
Imports	0.194***	0.235***	0.395**	0.00709**	−0.000305	−0.000557**	4.56e-05
	(0.0581)	(0.0421)	(0.175)	(0.00305)	(0.000180)	(0.000223)	(0.000220)
Broad money	0.0881	0.0391	0.346***	−0.00419*	−0.000476**	−0.000318	−0.000695**
	(0.0590)	(0.0553)	(0.113)	(0.00231)	(0.000218)	(0.000325)	(0.000325)
Savings	0.215***	0.197***	0.480**	0.00138	−0.000133	−0.000608**	0.000492
	(0.0669)	(0.0360)	(0.191)	(0.00303)	(0.000212)	(0.000214)	(0.000305)
Stock market capitalizationt-1	0.285***
	(0.0951)
Stock market total value t-1		0.859***
		(0.0945)
Government bonds t-1			0.335***
			(0.0909)
Corporate bond t-1				0.933***
				(0.0285)
Financial development index t-1					−0.225***
					(0.0422)
Financial markets index t-1						−0.146**
						(0.0604)
Financial institutions index t-1							−0.240***
							(0.0402)
Constant	2.236	−21.35**	3.289	0.0190	0.120***	−0.0979***	0.307***
	(4.308)	(9.778)	(19.68)	(0.432)	(0.0327)	(0.0315)	(0.0388)
Observations	383	447	462	464	468	428	468
Number of year	19	19	19	19	19	19	19
Number of Groups	31	31	34	34	29	29	29
Number of instruments	18	18	18	18	19	19	17
F-Statistics (p-value)	643.40	19.31	39.92	15.51	25.75	4.47	24.22
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.001)	(0.000)
AR(1)	−2.61	−2.30	−2.14	−1.90	−2.54	−3.71	−1.90
	(0.011)	(0.076)	(0.033)	(0.057)	(0.0124)	(0.004)	(0.057)
AR(2)	−2.48	−2.14	−2.35	−2.51	−1.08	−1.08	−0.46
	(0.013)	(0.025)	(0.073)	(0.0612)	(0.282)	(0.281)	(0.642)
Sargan Test	46.59	125.19	15.87	44.39	81.97	108.07	76.28
	(0.000)	(0.000)	(0.026)	(0.000)	(0.000)	(0.000)	(0.000)
Hansen Test	8.72	4.70	8.33	4.57	7.03	10.27	13.50
	(0.274)	(0.696)	(0.304)	(0.712)	(0.534)	(0.246)	(0.036)

Standard errors in parentheses

*** p < 0.01, ** p < 0.05, * p < 0.1

Source: Authors own computation

Table 5. Total pension funds in selected African countries from 2015 to 2020

Country	Unit	2015	2016	2017	2018	2019	2020
Angola	US Dollar, Millions	1,761	897	903	765	877	865
Botswana	US Dollar, Millions	.	.	8,310	7,523	8,768	.
Egypt	US Dollar, Millions	5,512	2,665	3,598	3,965	4,873	5,635
Ghana	US Dollar, Millions	1,231	1,617	2,496	2,700	3,138	3,823
Kenya	US Dollar, Millions	7,957	9,588	10,463	11,452	12,811	.
Malawi	US Dollar, Millions	456	523	727	944	1,154	1,320
Mauritius	US Dollar, Millions	482	528	633	189	1,517	.
Namibia	US Dollar, Millions	.	10,008	12,496	11,628	12,196	12,112
Nigeria	US Dollar, Millions	26,913	20,213	24,560	28,136	33,284	32,299
South Africa	US Dollar, Millions	259,622	302,975	346,106	312,355	.	.
Tanzania	US Dollar, Millions	4,115	4,155	4,444	.	.	.
Zambia	US Dollar, Millions	562	634	752	689	616	.

Source: OCED 2021

Table 6. Stock Market Capitalization of some selected African countries from 2015 to 2020. Source: World Bank (2020)

COUNTRY	2015	2016	2017	2018	2019	2020
South Africa	212.27	293.99	322.71	213.74	272.3	313.46
Morocco	45.39	55.73	61.13	51.72	54.57	57.16
Mautitius	61.91	61.87	73.48	69.44	61.34	56.37
Kenya						21.26
Tunisia	19.26	19.05	21.16	19.51	20.36	20.16
Namibia		21.8	22.61	17.99	20.8	17.68
Ghana						13.2
Nigeria	10.27	7.36	9.9	7.94	9.8	13.09
Ivory coast	27.27	25.78	24.2	14.57	13.84	11.95
Egypt	16.76	10.02	19.75	16.82	14.58	11.32
Tanzania						10.39
Algeria	0.09	0.26	0.21	0.21

Definition: market capitalization (also known as market value) is the share price is the number of outstanding shares (including their several classes) for listed domestic companies. Investment funds, unit trusts and companies whose only business goal is to hold shares of other listed companies are excluded. Data are end-of-year values

Table 7. PPG, bonds, (NFL current US$) of some selected African countries from 2015 to 2020. Source: WDI 2020

Country	2015	2016	2017	2018	2019	2020
Angola	1,500,000,000	0		3,500,000,000	2,000,000,000	0
Cote d’Ivoire	1,000,000,000	136,377,000	1,135,786,000	1,927,785,000	403,923,000	477,999,000
Congo, Rep.	−18,156,000	−22,695,000	−27,234,000	−27,234,000	−27,234,000	−27,234,000
Egypt, Arab Rep.	1,500,000,000	−1,250,000,000	6,400,000,000	5,867,975,000	7,886,633,000	2,646,242,000
Gabon	500,000,000		−18,129,000	−14,000,000		250,000,000
Ghana	1,000,000,000	750,000,000		1,228,079,000	2,716,802,000	2,520,558,000
Guinea-Bissau	7,755,000	−481,000	40,638,000	28,197,000	29,482,000	86,296,000
Kenya			2,000,000,000	1,350,000,000	0
Morocco	1,109,584,000	0	0	0	1,239,283,000	3,000,000,000
Nigeria	0	0	4,800,000,000	4,868,352,000		0
Senegal		1,100,000,000	2,181,255,000	0	−103,803,000
Tunisia	1,000,000,000	500,000,000	1,259,654,000	590,627,000	48,741,000	−706,588,000
South Africa	−10,098,663,000	10,089,142,000	10,816,818,000	−3,677,962,000	11,687,000,000	−3,679,884,000

Table 4. System GMM estimation_ interactions

	Stock Market		Bond Market		Financial Market
	Stock market capitalization	Stock market to GDP	Government domestic bond to GDP	Corporate Bond to GDP	Financial Development Index	Financial Market Index	Financial Institution Index
VARIABLES	model 8	model 9	model 10	model 11	model 12	model 13	model 14
Pension funds	−0.232***	−0.0554	−0.180*	0.00726***	0.000821**	0.000574*	0.000769*
	(0.0739)	(0.0514)	(0.102)	(0.00117)	(0.000343)	(0.000293)	(0.000441)
IQ	−3.103*	−1.192	−27.27***	−0.102	0.0792***	0.0677***	0.0944***
	(1.559)	(1.186)	(4.567)	(0.0711)	(0.0101)	(0.0119)	(0.0107)
Pension fund * IQ	−0.166***	0.141***	0.601**	−0.000681	0.433**	0.413***	−0.138*
	(0.0281)	(0.0433)	(0.218)	(0.00327)	(0.217)	(0.112)	(0.0768)
Inflation	−0.0306	−0.0833***	0.0316	−0.00104	2.51e-06	0.000304*	−0.000216
	(0.0222)	(0.0228)	(0.182)	(0.00185)	(0.000207)	(0.000162)	(0.000281)
GDP	0.231	1.001	−8.771**	−0.0203	0.0173***	0.0317***	0.00858
	(1.073)	(1.268)	(3.566)	(0.0704)	(0.00579)	(0.00644)	(0.00713)
Population	−4.01e-08***	3.23e-08	2.29e-07***	−4.64e-09**	−6.21e-11	−2.02e-10	9.76e-11
	(1.28e-08)	(2.09e-08)	(4.27e-08)	(1.79e-09)	(1.34e-10)	(1.29e-10)	(1.81e-10)
Interest rate	0.0267	−0.0100	0.644	0.00409	−0.000599	0.000486	−0.00123
	(0.0450)	(0.0921)	(0.379)	(0.00283)	(0.000784)	(0.000528)	(0.000916)
Imports	0.183***	0.265***	0.533***	0.00693**	−0.000359	−0.000628**	−4.69e-05
	(0.0542)	(0.0395)	(0.168)	(0.00309)	(0.000230)	(0.000254)	(0.000286)
Broad money	0.110*	0.0397	0.339***	−0.00422*	−0.000476**	−0.000317	−0.000706**
	(0.0616)	(0.0517)	(0.0972)	(0.00236)	(0.000216)	(0.000350)	(0.000327)
Savings	0.202***	0.229***	0.646***	0.00112	−0.000190	−0.000700***	0.000363
	(0.0600)	(0.0364)	(0.174)	(0.00294)	(0.000215)	(0.000236)	(0.000365)
Stock market capitalization t-1	0.257**
	(0.103)
Stock market total value t-1		0.821***
		(0.0836)
Government bonds t-1			0.295***
			(0.0825)
Corporate bond t-1				0.934***
				(0.0296)
Financial development index t-1					−0.231***
					(0.0455)
Financial markets index t-1						−0.149**
						(0.0599)
Financial institutions index t-1							−0.244***
							(0.0414)
Constant	3.388	−18.13*	25.12	0.0101	0.113***	−0.109***	0.288***
	(4.585)	(8.759)	(20.26)	(0.426)	(0.0323)	(0.0303)	(0.0458)
Observations	383	447	462	464	468	428	468
Number of year	19	19	19	19	19	19	19
Number of Groups	31	34	34	34	29	29	29
Number of instruments	19	19	19	19	20	20	18
Marginal Effect	−0.1278		−0.5574		−0.2711	−0.2588	0.0874
F-Statistics (p-value)	763.00	26.95	48.19	24.35	31.72	4.54	136.57
	(0.000)	(0.000)	(0.000)	(0.000)	(0.000)	(0.001)	(0.000)
AR(1)	−2.59	−2.50	−2.13	−1.90	−2.53	−2.70	−2.14
	(0.011)	(0.0617)	(0.033)	(0.057)	(0.0126)	(0.048)	(0.032)
AR(2)	−1.48	−1.32	−2.33	−2.67	−2.82	−1.06	−2.12
	(0.138)	(0.188)	(0.0739)	(0.050)	(0.041)	(0.288)	(0.09)
Sargan Test	47.03	130.60	15.80	40.64	66.38	106.81	47.35
	(0.000)	(0.000)	(0.027)	(0.000)	(0.000)	(0.000)	(0.000)
Hansen Test	8.81	5.11	8.50	4.69	7.16	10.37	10.43
	(0.267)	(0.646)	(0.290)	(0.698)	(0.519)	(0.240)	(0.108)

Standard errors in parentheses

*** p < 0.01, ** p < 0.05, * p < 0.1

Bank, W. (2020), World Development Indicators,

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