From Population Growth to TFP Growth

Hiroshi Inokuma and Juan M. Sánchez
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Hiroshi Inokuma: Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: hiroshi.inokuma@boj.or.jp)
Juan M. Sánchez: Senior Economic Policy Advisor, Federal Reserve Bank of St. Louis (E-mail: juan.m.sanchez@stls.frb.org)

No 24-E-09, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: A slowdown in population growth causes a decline in business dynamism by increasing the share of old businesses. But how does it affect productivity growth? We answer this question by extending a standard business dynamics model to include endogenous productivity growth. Theoretically, the growth rate of the size of surviving old businesses is a "sufficient statistic" for determining the direction and magnitude of the impact of population growth on productivity growth. Quantitatively, this effect is significant across balanced growth paths for the United States and Japan. TFP growth in the United States falls by 0.3 percentage points because of the slowing in population growth between 1970 and 2060. The same driving force produces a significantly bigger response in Japan. Despite the significant long-run effect, we discover that changes in TFP growth are slow in reaction to population growth changes due to two short-run counterbalancing factors.

Keywords: population growth; economic growth; firms dynamics; demographics; productivity; innovation; TFP (search for similar items in EconPapers)
JEL-codes: E20 J11 O33 O41 (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-eff, nep-ent, nep-gro, nep-ipr, nep-lab and nep-sbm
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