Latin American Capital Markets

132 KAREN GOLDSTEIN ROSSOTTOFigure 5-3 I The Impact of Demand and Supply FactorsI on Institutional Investorstors would have had little impact; they instead worked in a mutually reinforcing fashionto create a favorable environment for growth.Demand FactorsFavorable Economic ConditionsAlthough this chapter asserts that institutional investors contribute to economicgrowth, a base amount of domestic wealth drives initial institutional demand. As thesector develops, its benefits for the markets and the economy create momentum forfurther institutional development. As markets move toward efficiency, they involvea greater number of market participants or stakeholders whose interests in a wellfunctioningmarket system create the conditions for further institutional growth.As outlined in box 5-2, during periods of strong economic growth in theUnited States, institutional products became more popular as individual wealth increased.In 1980-99 in particular; high corporate profit growth, low inflation, a bull market,and relatively low interest rates contributed to institutional demand (ICI 2001).However, measures to increase investor confidence in the markets and tax incentivesfor investment in private pension plans prompted the channeling of individual savingsinto institutional investments as opposed to alternative savings vehicles.Demand for Private Pension FundsCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubAs life expectancies in industrial economies have increased and populations haveshifted to include a greater proportion of older people, governments have been com-