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Demographics and Economic Growth

Demographics and Economic Growth

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Published by Claus Vistesen

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Published by: Claus Vistesen on Oct 17, 2010
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VIENNA INSTITUTE
Working Papers
Vienna Institute of DemographyAustrian Academy of SciencesA-1040 Vienna · AustriaE-Mail: 
vid
@oeaw.ac.atWebsite: www.oeaw.ac.at
/vid
Wohllebengasse
12-14
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Abstract
The purpose of this article is to identify the role of population size, population growth and population ageing in models of endogenous economic growth. While in exogenous growthmodels demographic variables are linked to economic prosperity mainly via the populationsize, the structure of the workforce, and the capital intensity of workers, endogenous growthmodels and their successors also allow for interrelationships between demography andtechnological change. However, most of the existing literature considers only theinterrelationships based on population size and its growth rate and does not explicitly accountfor population ageing. The aim of this paper is (a) to review the role of population size and population growth in the most commonly used economic growth models (with a focus onendogenous economic growth models), (b) discuss models that also allow for populationageing, and (c) sketch out the policy implications of the most commonly used endogenousgrowth models and compare them to each other.JEL classification: J10, O16, O41
Keywords
Demographic change, endogenous R&D, economic growth
Authors
Klaus Prettner, Vienna Institute of Demography, Austrian Academy of Sciences, and Instituteof Mathematical Methods in Economics, Vienna University of Technology; email:klaus.prettner@oeaw.ac.atAlexia Prskawetz, Institute of Mathematical Methods in Economics (research group oneconomics), Vienna University of Technology, and Vienna Institute of Demography, AustrianAcademy of Sciences; email:afp@econ.tuwien.ac.at
Acknowledgments
We would like to thank Holger Strulik (University of Hannover) and three anonymousreferees for valuable comments and suggestions. The paper was prepared within the research project ”Agglomeration processes in ageing societies” funded by the Vienna Science andTechnology Fund (WWTF) in its “Mathematics and...” Call 2007.
 
Demographic Change in Models of Endogenous EconomicGrowth. A Survey.
Klaus Prettner and Alexia Prskawetz
1 Introduction
During the last decades, all industrialized countries had to face declines in birth rates (even farbelow the replacement level), while survival rates continued to improve (in particular for oldercohorts), allowing people to reach older ages. As a consequence, populations in industrializedcountries started to age and eventually – as declining mortality rates and migration are not ableto compensate the fall in fertility – they will even decline (see for example United Nations, 2007;Eurostat, 2009). While these developments will happen for sure, it is not clear, how they willaffect the overall economic performance of the countries under consideration. The interrelationsbetween long-run economic growth on the one hand and the population size, its growth rate as wellas population ageing on the other hand are therefore of central interest (see for example Bloomet al., 2008, 2010).To gain insight into the linkage between demography and economic performance, we reviewdifferent models explaining medium-run (corresponding to the transitional path) and long-run(corresponding to the steady-state equilibrium or the balanced growth path) economic growthand discuss their predictions when the underlying demographic structure is changed. The resultscrucially depend on the models used for analysing the medium- and the long-run economic growthdevelopments. In exogenous growth models demographic variables are linked to economic growthvia population size, the structure of the workforce and the capital intensity of workers. An increasein population size will foster capital dilution, while changes in the decomposition of the workforcewill affect aggregate productivity.Endogenous growth models allow for additional channels through which demographic changescan affect the overall economic performance. These include the role of the number of scientistsdetermining the pace of technological change, changes in the demand for innovative goods as wellas changes in the human capital endowment and therefore the productivity of workers.Semi-endogenous growth models have been mainly designed to get rid of the positive relationbetween population size and economic growth (scale effect) as evident in endogenous growth modelsof the first generation since such an effect is not supported by empirical evidence (cf. Jones,1995). However, this extension has come at the price that economic development again dependson exogenously given parameter values and long-run growth cannot be affected by economic policy.This is a feature that this type of growth models shares with exogenous growth models which isalso the reason why they are called semi-endogenous.1

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