Chilean-style pension reform, leading to the creation of fully-funded privately managed pension systems, may have significant positive direct effects on savings, growth, and welfare. However, the indirect link, via capital market development, may be as important. This hypothesis is verified with evidence from Emerging Economies that have recently engaged in such reforms. Chile, Argentina and Peru are analysed more deeply. There is abundant qualitative and anecdotal evidence that relates pension reform with the accumulation of "institutional capital", with the existence of a dynamic legal framework, with increased professionalism, transparency and integrity and also with a better corporate governance balance. Evidence of increased financial innovation is also found; of bank disintermediation, however, it is not. In addition, the statistical, time-series and panel-data evidence is consistent with the following hypotheses: a reduction in firms' cost of capital; lower security-price volatility; and higher traded volumes. Overall, this indirect channel (Levine and Zervos, 1998) may have important implications for economic growth and productivity.