An Investigation of Firm Heterogeneity in the Constraints to Development and Growth in Pakistan

This study considers the importance of firm characteristics in explaining the degree of business constraints facing Pakistani firms in the Investment Climate Survey. We quantify how firms with differing characteristics experience particular problems. After controlling for other factors, the largest differences in responses to business constraints occur among firms that vary by manufacturing industry, and among firms operating under different ownership structures or selling in different markets. In some cases, firm size and firm location also play an important role. The age of the firm generally does not lead to significant differences. These results account for the heterogeneity of firms better than others, and may be important for policy-makers to develop more specific approaches to fostering the investment climate.Pakistan, Investment Climate, Business Constraints

An Investigation of Firm Heterogeneity in the Constraints to Development and Growth in Pakistan

This study considers the importance of firm characteristics in explaining the degree of business constraints facing Pakistani firms in the Investment Climate Survey. We quantify how firms with differing characteristics experience particular problems. After controlling for other factors, the largest differences in responses to business constraints occur among firms that vary by manufacturing industry, and among firms operating under different ownership structures or selling in different markets. In some cases, firm size and firm location also play an important role. The age of the firm generally does not lead to significant differences. These results account for the heterogeneity of firms better than others, and may be important for policy-makers to develop more specific approaches to fostering the investment climate

Low Returns and Optimal Retirement Savings

Lifetime financial outcomes relate closely to the sequence of investment returns earned over the lifecycle. Higher return assumptions allow individuals to save at a lower rate, withdraw at a higher rate, retire with a lower wealth accumulation, and enjoy a higher standard of living throughout their lifetimes. Often analysis of this topic is based on the investment performance found in historical market returns. However, at the present bond yields are historically lower and equity prices are quite high, suggesting that individuals will likely experience lower returns in the future. Increases in life expectancy, especially among higher-income workers who must also rely more heavily on their private savings to smooth spending, further increases the cost of funding retirement income today. The implications are higher savings rates, lower withdrawal rates, the need for a larger nest egg at retirement, and a lower lifetime standard of living. We demonstrate this using a basic life cycle framework, and provide a more complex analysis of optimal savings rates that incorporates Social Security, tax rates before and after retirement, actual retirement spending patterns, and differences in expected longevity by income. We find that lower-income workers will need to save about 50 percent more if low rates of return persist in the future, and higher-income workers will need to save nearly twice as much in a low return environment compared to the optimal savings using historical returns

Will 2000-Era Retirees Experience the Worst Retirement Outcomes in U.S. History? A Progress Report after 10 Years

We find evidence that retirees in 2000, in particular, are on course to potentially experience the worst retirement outcomes of any retiree since 1926. This holds for a wide variety of asset allocations and withdrawal rate strategies. Wealth depletion is taking place more rapidly for 2000-era retirees than for retirees who even endured the Great Depression or the stagflation of the 1970s. Though moderate inflation during the past decade has resulted in current withdrawal rates that are a bit less for the 2000 retiree than for some retirees in the 1960s, this is hardly reassuring with further analysis based on the required future asset returns needed for sustainability. Our findings cast doubt as to whether the 4 percent withdrawal rate rule will be sustainable for turn-of-the-century retirees

The Portfolio Size Effect and Lifecycle Asset Allocation Funds: A Different Perspective

経済学 / EconomicsBasu and Drew (in the JPM Spring 2009 issue) argue that lifecycle asset allocation strategies are counterproductive to the retirement savings goals of typical individual investors. Because of the portfolio size effect, most portfolio growth will occur in the years just before retirement when lifecycle funds have already switched to a more conservative asset allocation. In this article, we use the same methodology as Basu and Drew, but we do not share their conclusion that the portfolio size effect soundly overturns the justification for the lifecycle asset allocation strategy. While strategies that maintain a large allocation to stocks do provide many attractive features, we aim to demonstrate that a case for supporting a lifecycle strategy can still be made with modest assumptions for risk aversion and diminishing utility from wealth. Our differing conclusion results from four factors: (1) we compare the interactions between different strategies; (2) we consider a more realistic example for the lifecycle asset allocation strategy; (3) we examine the results for 17 countries; and (4) we provide an expected utility framework to compare different strategies. We find that with a very reasonable degree of risk aversion, investors have reason to prefer the lifecycle strategy in spite of the portfolio size effect.JEL Classification Codes: D14, D81, G11, G2

Lifecycle Funds and Wealth Accumulation for Retirement: Evidence for a More Conservative Asset Allocation as Retirement Approaches

経済学 / EconomicsA line of recent studies cast doubt on the efficacy of the lifecycle investment strategy, which calls for switching into a more conservative investment portfolio as retirement approaches, as a suitable way to provide for the retirement needs of workers with defined-contribution pensions. After comparing simulation outcomes for lifecycle and fixed asset allocation strategies, we determine that the lifecycle strategy can be justified even in a framework including only financial wealth. We find that investors with very reasonable amounts of risk aversion may prefer the lifecycle approach, despite the tendency for aggressive fixed allocation strategies to produce larger expected wealth.JEL Classification Codes: D14, D81, G11, G2