Population growth and savings rates: Some new cross-country estimates

Christopher Cook

International Review of Applied Economics, 2005, vol. 19, issue 3, 301-319

Abstract: It is widely recognised that population growth can have two conflicting effects on savings. It reduces savings as it leads to more dependent children, but if balanced it can also increase savings by increasing the number entering the working part of the life cycle and hence the number of potential savers. However, this positive effect has largely been ignored in the empirical literature. Based on the population growth rate as its measure and an augmented cross-country life cycle regression model evidence for its existence is confirmed. Confidence in the estimates is undermined by tests indicating that in many countries over the relevant period population growth was not in steady state balance. This is ameliorated by the high regression R2s and by comparable labour force growth rate estimates, but it was also found that the estimates could not be interpreted as evidence that countries with more rapid population growth rates actually save more. This is because the negative impact of larger families was found to outweigh any increase in savings because of more families. The net elasticity effect was calculated to be - 0.08. The paper concludes that savings continues to be a cost of rapid population growth, but perhaps not quite as debilitating as some might have presumed.

Keywords: Life cycle model; savings rates; population growth; dependency; JEL Classification: E210; J100; O150; O160 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (2)

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DOI: 10.1080/02692170500119755

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