Population ageing and economic growth in seven OECD countries (original) (raw)

Decomposing Effects of Population Aging on Economic Growth in OECD Countries

Asian Economic Papers

In this paper, we investigate six channels through which population aging affects output growth per capita of 35 OECD countries where the old dependency ratio is already quite high. The six channels we consider are changes in: (i) physical capital; (ii) human capital; (iii) average working hours; (iv) labor participation rate; (v) age composition of 15–64 (the share of population aged between 15 and 64 years; and (vi) total factor productivity (TFP). We first confirm findings from previous studies that aging in OECD countries has negative effects on GDP growth per capita. We then find that the most important channel through which the negative effects of aging on economic growth operate is lowered TFP growth. Across our empirical specifications, lowered TFP growth associated with aging explains more than fully the lowered growth rate of GDP per capita. We also find evidence of demographic deficit (decreases in working age population share), but this negative effect of aging is more t...

Endogenous Growth in an Aging Economy: Evidence and Policy Measures

The Annals of Regional Science, 2012

This paper adopts the two-sector overlapping generation (OLG) model to capture the impact of population ageing on the regional economy and compares the effectiveness of government policy in an endogenous growth perspective. Comparing the computational results of a one-sector OLG model, where agent's productivity is given exogenously, this paper confirms that endogenously determined investment in human capital significantly offsets the negative effects of the ageing population on the regional economy. This paper also attempts to check if there is room for the government to weaken and prevent the negative effects of the ageing population. For this, this paper examines the effects of two kinds of government transfer systems on the regional economy: money transfer and educational transfer systems. The money transfer, which is redistributed to agents by the government, could be used for an individual's consumption, saving and educational investment. Educational transfer is given directly to the individual proportional to his or her opportunity cost stemming from education investment. The result shows that the educational transfer system is superior to money transfer system in the long-run in terms of growth of per-capita income, aggregate welfare and stabilizing the factor prices. However, the result implies that there exists a trade-off relationship in implementing an educational transfer system between economic growth and equity of income and wealth.

Effects of Population Aging on Economic Growth: A Panel Analysis

Seoul Journal of Economics, 2013

This paper aims to assess the effects of population aging on economic growth. We adopt the partial-adjustment model to regress the per capita GDP growth rates of 80 countries from 1960 to 2005 against a set of independent variables including the levels and changes in the proportions of the young and elderly population. Unlike the young population, the segment of the elderly population in the total population (or relative to the working-age population) does not indicate a "demographic burden" and does not inhibit economic growth in the short and long terms. Thus, in many countries, behavior responses to population aging occur in the form of high retirement savings, high labor force participation, and increased immigration of workers from developing countries. Thus, appropriate policies can be implemented to mitigate the adverse consequences of population changes.

Pension reform, employment by age, and long-run growth

Journal of Population Economics, 2013

We study the effects of pension reform in a four-period OLG model for an open economy where hours worked by three active generations, education of the young, the retirement decision of older workers, and aggregate per capita growth, are endogenous. Next to the characteristics of the pension system, our model assigns an important role to the composition of fiscal policy. We find that the model explains the facts remarkably well for many OECD countries. Our simulation results prefer an intelligent pay-as-you-go pension system above a fully-funded private system. When it comes to promoting employment, human capital, growth, and welfare, positive effects in a PAYG system are the strongest when it includes a tight link between individual labor income (and contributions) and the pension, and when it attaches a high weight to labor income earned as an older worker to compute the pension assessment base.

Aging population and public pensions: Theory and macroeconometric evidence

Panoeconomicus, 2014

Rapidly aging population in high-income countries has exerted additional pressure on the sustainability of public pension expenditure. We present a theoretical model of public pension expenditure under endogenous human capital, where the latter facilitates a substantial decrease in equilibrium fertility rate alongside the improvement in life expectancy. We demonstrate how higher life expectancy and human capital endowment facilitate a rise of net replacement rate. We then provide and examine an empirical model of old-age expenditure in a panel of 33 countries for the period 1998-2008. Our results indicate that increases in effective retirement age and total fertility rate would reduce age-related expenditure substantially. While higher net replacement rate would alleviate the risk of old-age poverty, further increases would add considerable pressure on the fiscal sustainability of public pensions.

Impact of Population Ageing on Economic Growth in Emerging EU Countries

Ekonomický časopis/Journal of Economics, 2024

This study aims to investigate the effect of one of the most prominent contemporary changes in demographic structure, population ageing, on the economic performance of eight emerging economies from Central and Eastern Europe. Despite experiencing relatively high economic growth, these countries are still striving to catch up with the more advanced European economies (which are used as the control group). Concurrently, they are facing significant population ageing. Using the Pooled Mean Group estimator in the panel ARDL model, the study finds that a one percent increase in the old dependency ratio results in a 0.52 percent decrease in GDP per capita growth rate and a 0.53 percent decrease in GDP growth rate in the long term. The gross capital formation rate and the gross savings positively impact per capita economic growth in the short term, whereas the labour force participation rate's impact on the GDP growth varies across the country groups. The findings underscore the importance of implementing active ageing programs, creating fiscal buffers, fostering lifelong learning, and promoting employment among vulnerable groups to mitigate the adverse effects of population ageing on economic growth in emerging economies. Keywords: Central and Eastern Europe, emerging economies, economic growth, old de-pendency ratio, ARDL (PMG) model

The Impact of Ageing on Demand, Factor Markets and Growth

Social Science Research Network, 2005

This paper examines the channels through which ageing will shape the main economic factors that in turn affect potential growth; identifies current policy settings that may in fact amplify the adverse impact of demographic trends; and sets out policy reforms that will work to temper the effects of ageing on growth. The paper begins with a brief discussion of demographic issues. The analysis first focuses on the impact of these trends on the future level and structure of consumption, which may affect aggregate saving and the structure of the economy, respectively. Then, it explores the main channels through which ageing affects the supply side of the economy following a production function approach: capital markets, labour markets and productivity. The empirical analysis focuses on a subset of large OECD countries with differing ageing patterns and generosity of pension systems. Using a simple general equilibrium overlapping generations model and considering alternative reform scenarios, some illustrative simulations are presented decomposing the effects of ageing on potential GDP per capita growth and economic convergence within OECD countries.

Ageing Population and Economic Growth: An Empirical Investigation

International Journal of Academic Research in Business and Social Sciences, 2020

Due to a rise in the ageing population, the upper-middle-income economies might not be able to embrace the fourth industrial revolution, thus limiting their ability to achieve highincome economies. This paper aims to investigate how the increase in the ageing population affects the economic growth of the 32 countries in the upper-middle-income economies from 1990 to 2018. By employing system GMM, the finding shows that the ageing population does adversely affect the economic growth of the upper-middle-income economies as outlined by the theory of secular stagnation. This finding requires special attention for the governments to redesign their fiscal policy by focusing on higher budget allocation on education and critical sectors. It is with a hope that the long-term growth will increase eventually even when the countries are facing a rise in the ageing population. Future researchers may extend this study by examining how ageing population affect the public debt of a country.

Life expectancy, retirement and endogenous growth

Economic Modelling, 2004

In this paper I address the links between life expectancy, retirement age and economic growth. I build a finite horizon OLG model with exogenous retirement in which human capital accumulation drives endogenous growth. The return on individual investment in human capital depends positively on the remaining active years. Postponing retirement age raises the return and investment in human capital, and the proportion of working individuals, thus increasing the sustainable growth rate. Increments in life expectancy do not increase the growth rate by themselves, but reduce it: optimal investment in human capital is not affected and the proportion of retirees becomes larger. Therefore, increases in life expectancy lead to higher growth rates only if they are accompanied by simultaneous increments in the working period.