Longevity-induced vertical innovation and the tradeoff between life and growth

Annarita Baldanzi (), Klaus Prettner and Paul Tscheuschner
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Annarita Baldanzi: University of Milan

Journal of Population Economics, 2019, vol. 32, issue 4, No 6, 1293-1313

Abstract: Abstract We analyze the economic growth effects of rising longevity in a framework of endogenous growth driven by quality-improving innovations. A rise in longevity increases savings and thereby places downward pressure on the market interest rate. Since the monopoly profits generated by a successful innovation are discounted by the endogenous market interest rate, this raises the net present value of innovations, which, in turn, fosters R&D investments. The associated increase in the employment of scientists leads to faster technological progress and a higher long-run economic growth rate. From a welfare perspective, the direct effect of an increase in life expectancy tends to be larger than the indirect effect of the induced higher consumption due to faster economic growth. Consequently, the debate on rising health care expenditures should not be predominantly based on the growth effects of health care.

Keywords: Long-run growth; Vertical innovation; Increasing life expectancy; Welfare effects of changing longevity; Size of health care sectors (search for similar items in EconPapers)
JEL-codes: J11 J17 O31 O41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (22)

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Working Paper: Longevity-induced vertical innovation and the tradeoff between life and growth (2017)
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DOI: 10.1007/s00148-018-0724-x

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