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The Economics of an Ageing Population

Macroeconomic Issues

Edited by Paolo Onofri

The Economics of an Ageing Population studies the effects of demographic transition on the economies of industrialised countries. The authors demonstrate that an ageing population does not necessarily lead to a reduction in growth, providing that the working population are more productive and save a greater percentage of their income. They look in detail at the examples of Italy and Japan, two countries which have the fastest ageing populations in Europe and the world respectively.
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Chapter 1: Economic growth under the demographic transition: a theory and some international evidence*

Shin-ichi Fukuda and Ryoko Morozumi


Shin-ichi Fukuda and Ryoko Morozumi 1. INTRODUCTION Recent studies based on cross-country regressions establish the existence of strong linkages between demographic change and economic growth.1 In particular, studies such as Higgins and Williamson (1996, 1997), Bloom and Williamson (1998) and Bloom et al. (1999) show that demographic variables have played a large role in East Asia’s economic success. According to these studies, the demographic transition – a change from high to low rates of mortality and fertility – has been more dramatic in East Asia during the twentieth century than in any other regions or historical period. A rapid decline in fertility, induced partly by the region’s economic success, led to a substantial reduction in the youth dependency ratio, thereby helping to boost saving rates and rates of economic growth in the region. East Asia thus has had exceptionally favorable demographic characteristics in the form of high life expectancy and low fertility, despite its initially low income level. These studies, however, point out that the favorable demographic characteristics have a purely transitional effect on economic growth; this effect operates only when the dependent and working-age populations are growing at different rates. Therefore, they predict that economic growth in East Asia will likely slow in the future, because of stabilization of fertility rates at their current low levels and increases in the dependency ratio as the population ages.2 In terms of demographic changes, Japan is a leading East Asian country that has enjoyed the transitionally favorable demographic characteristics earlier than...

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