Pension Funds Regulation in the Context of Investment Climate Development

Many Central European countries, including Croatia, have still not reached the desired regulatory and institutional level of the financial sector required for the development of a favourable business environment. The aim of this paper is to emphasise the key impact of financial system regulation on the development of investment climate by analysing mandatory pension funds (MPF) as an ever-growing element of the Croatian financial system. The objective of this paper is to show the quantitative impact of potential changes in the regulation of MPFs on investments in Croatia and, consequently, on the improvement of the business environment as an important element of economic growth. For this purpose, a comparative analysis of the regulation of MPFs in Croatia and the European Union (EU) was conducted and projections of a potential rise in investments were made, taking into account possible alignment with the trends in the EU-15 through regulation relaxation. The results clearly show that Croatia is slowly following EU trends, and it can be concluded that a change (in terms of relaxing) in MPF investment regulation can contribute to investment growth, improvement of the investment climate and business environment, and it can thus stimulate economic development, but with the careful assessment and balance of potential risk and returns of MPF portfolios.