Factors influencing Pension Privatization in former communist countries in Eastern Europe and Central Asia

From 1990 onwards, a significant number of former communist countries from Eastern Europe and Central Asia decided to reform their public pension system by creating a mandatory private pillar. Other ex-communist countries from the same two regions only made some parametric changes to their public pension system. There are concurrent theories trying to explain why certain countries implemented a paradigmatic reform on the pension systems while others did not. All these theories are focusing on what factors determine the decision makers to reform the public pension system: the coercion of international financial institution, demographic and economic pressures, political support, the relative strength of government and unions or the proportion of peer countries that have adopted similar measures. This study tests the influence of all the factors mentioned above on the decision to adopt the pension privatization in former communist countries from Eastern Europe and Central Asia. Using event history analysis with time-varying covariates of data from 24 states between 1990 and 2013 the study shows that the probability to reform the public pension system in one country increases as the proportion of neighbor countries who adopted the same measure rises. The conclusions of this research can be compared with those taken from the interviews with the decision makers from countries of interest. Also, the research can be used as a starting point for studying the steps backwards made on this path by Hungary, Poland and Argentina. These countries had reversed the pension privatization by transferring savings under management by private pension funds back to the public sector.