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From Population Growth to TFP Growth

Hiroshi Inokuma () and Juan Sanchez

No 2023-006, Working Papers from Federal Reserve Bank of St. Louis

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 firm 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 TFP growth. Quantitatively, this effect is significant across balanced growth paths for the United States and Japan. TFP growth in the United States falls by 0.10-0.23 percentage points because of the slowing in population growth between 1900 and 2060. The same driving force produces a noticeably 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; total factor productivity (TFP); Japan (search for similar items in EconPapers)
JEL-codes: E20 J11 O33 O41 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2023-03-27, Revised 2023-08-25
New Economics Papers: this item is included in nep-ent, nep-gro and nep-lab
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DOI: 10.20955/wp.2023.006

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