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The impact of an ageing population on economic growth: an exploratory review of the main mechanisms

Renuga Nagarajan (), Aurora Teixeira () and Sandra Silva ()
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Renuga Nagarajan: CEF.UP, Faculdade de Economia da Universidade do Porto

FEP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: Although a myriad of important theoretical and empirical contributions on ageing populations exist, these contributions are diffuse and lack an integrated vision of the distinct mechanisms through which ageing populations impact on economic growth. As such, in this paper we survey the literature that provides insights on the ageing population and its effect on economic growth. In particular, we sought to uncover the main mechanisms through which ageing impacts on economic growth. The literature review shows that the impact of ageing on the performance of countries is intimately related to the mechanism elected. About 70% of the empirical studies that focused on the ‘public social expenditure’ mechanism convey a negative impact of ageing on economic performance, whereas the majority (60%) of empirical studies that focus on ‘human capital’ fail to uncover any significant statistical relation between ageing and the economic growth proxy and the positive impact is more closely related to the ‘consumption and saving patterns’ mechanism. Estimation methodologies also seem to be associated with distinct impacts of ageing on economic growth, with less sophisticated econometric methods (i.e. OLS and panel) being most often associated with negative (cor)relations. The bulk of the empirical evidence concerns developed countries (and the ‘public social expenditure’ mechanism), with most of the analysis indicating a negative and significant relation between ageing and growth. Given that developed, developing and even the least developed countries are/will be affected by the phenomenon of an ageing population, knowing the degree to which the influence of ageing varies among countries (including developing and the least developed), and through which mechanisms, is essential to specifying sound public policies.

Keywords: Ageing; economic growth; consumption and saving patterns; public expenditure; human capital (search for similar items in EconPapers)
JEL-codes: J1 O4 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-09
New Economics Papers: this item is included in nep-age, nep-dem, nep-fdg and nep-pbe
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