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Population Aging and the Direction of Technical Change

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  • Andreas Irmen

Abstract

An analytical framework is developed to study the repercussions between endogenous capital- and labor-saving technical change and population aging. Following an intuition often attributed to Hicks (1932), I ask whether and how population aging affects the relative scarcity of factors of production, relative factor prices, and the direction of induced technical change. Aging is equivalent to an increase in the old-age dependency ratio of an OLG-economy with two-period lived individuals. In this framework aging increases the relative scarcity of labor with respect to capital. Therefore, there will be more labor- and less capital-saving technical change. Unless there are contemporaneous knowledge spillovers across innovating firms technical change induced by a small increase in the old-age dependency ratio has no first-order effect on current GDP. The presence of capital-saving technical change is shown to imply that the economy's steady-state growth rate is independent of its age structure.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2888.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2888

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Keywords: demographic transition; capital accumulation; direction of technical change;

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Cited by:
  1. Stijepic, Denis & Wagner, Helmut, 2009. "Population-ageing, structural change and productivity growth," MPRA Paper 37005, University Library of Munich, Germany, revised 29 Feb 2012.
  2. Narciso, Alexandre, 2010. "The impact of population ageing on international capital flows," MPRA Paper 26457, University Library of Munich, Germany.
  3. Attar, M. Aykut, 2013. "Growth and Demography in Turkey: Economic History vs. Pro-Natalist Rhetoric," MPRA Paper 47275, University Library of Munich, Germany.

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