Effects of Demographic Changes on Economic Growth in an Open Economy: The Relationship between Population Ageing and Capital Movements (in Korean)

Previous empirical literatures studying the effects of demographics change on economic growth are mostly conducted without the possibility of capital movements. However, the effects could be different in an open economy with international capital movements. Against this background, this paper investigates the effects of demographic shifts on economic growth by observing country-level panel dataset for 108 countries from 1965 to 2010. The estimation results can be summarized as follows: First, the high correlation between saving rate and investment rate proposed by Feldstein and Horioka (1980) has gradually diminished with time. This implies a steady increase in capital movements across borders. Furthermore, as the population aging progressed, both saving rates and investment rates fell while investment rates decrease less than the saving rates do. This suggests that if the shortages in investment were to be financed through external capital inflow, the negative impact of population ageing, as forecasted by models without capital movements, could be exaggerated. Finally, the rigorous estimation results involving panel-data techniques indicate that capital inflows in an open economy cancel out 9.5~21.9% of the total negative effect of the dependency ratio on economic growth, depending on estimation specifications. The cancelling-out effects are more pronounced with higher youth population ratio and when the types of capital inflow are FDI and debt rather than portfolio equity.