Decomposing effects of population aging on economic growth in oecd countries

Hyun Hoon Lee, Kwanho Shin

Research output: Contribution to journalArticlepeer-review

Abstract

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 par ticipation 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 aginin 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 than nullified by compensating increases in the average working hours and the labor force par ticipation rate. We conclude that because TFP growth rate can be permanently lowered, aging’s negative effects on GDP growth per capita are expected to be permanent.

Original languageEnglish
Pages (from-to)138-159
Number of pages22
JournalAsian Economic Papers
Volume20
Issue number3
DOIs
Publication statusPublished - 2021 Nov 1

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations

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