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Demographic Change and R&D-based Economic Growth: Reconciling Theory and Evidence

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  • Klaus Prettner
  • Timo Trimborn

Abstract

We analyze the effects of demographic change on medium- and long-run economic growth by setting forth an R&D-based growth model including an endogenous demographic structure. The model framework is consistent with the experience of industrialized countries, where declines in mortality are associated with even faster declines in fertility such that population growth slows down. We show that, in response to demographic change, technological progress and economic growth accelerate in the medium run but slow down in the long run. Numerical investigation reveals that the time period during which technological progress and economic growth are faster than without demographic change can be very long. Since the theoretical predictions for the medium run are consistent with the negative association between population growth and economic growth found in the empirical literature, the present framework can reconcile R&D-based growth theory with the available evidence.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c017_006.

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Length: 27 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:deg:conpap:c017_006

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Keywords: Demographic change; Technological progress; Economic growth; Semiendogenous growth theory; Transitional dynamics;

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References

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  1. Arnold, Lutz G., 1998. "Growth, Welfare, and Trade in an Integrated Model of Human-Capital Accumulation and Research," Journal of Macroeconomics, Elsevier, vol. 20(1), pages 81-105, January.
  2. Holger Strulik & Klaus Prettner & Alexia Prskawetz, 2010. "R&D-Based Growth in the Post-Modern Era," Working Papers 1009, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  4. David E. Bloom & David Canning & Günther Fink, 2011. "Implications of Population Aging for Economic Growth," PGDA Working Papers 6411, Program on the Global Demography of Aging.
  5. Klaus Prettner, 2013. "Population aging and endogenous economic growth," Journal of Population Economics, Springer, vol. 26(2), pages 811-834, April.
  6. Buiter, Willem H, 1988. "Death, Birth, Productivity Growth and Debt Neutrality," Economic Journal, Royal Economic Society, vol. 98(391), pages 279-93, June.
  7. Allen Kelley & Robert Schmidt, 1995. "Aggregate population and economic growth correlations: The role of the components of demographic change," Demography, Springer, vol. 32(4), pages 543-555, November.
  8. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  9. Timo Trimborn & Karl-Josef Koch & Thomas Steger, 2006. "Multi-Dimensional Transitional Dynamics: A Simple Numberical Procedure," CESifo Working Paper Series 1745, CESifo Group Munich.
  10. Solow, Robert M., 2000. "Growth Theory: An Exposition," OUP Catalogue, Oxford University Press, edition 2, number 9780195109030, September.
  11. Prettner, Klaus & Bloom, David E. & Strulik, Holger, 2013. "Declining fertility and economic well-being: Do education and health ride to the rescue?," Labour Economics, Elsevier, vol. 22(C), pages 70-79.
  12. Avner Ahituv, 2001. "Be fruitful or multiply: On the interplay between fertility and economic development," Journal of Population Economics, Springer, vol. 14(1), pages 51-71.
  13. David E. Bloom & David Canning & Guenther Fink & Jocelyn E. Finlay, 2007. "Fertility, Female Labor Force Participation, and the Demographic Dividend," PGDA Working Papers 2507, Program on the Global Demography of Aging.
  14. David de la Croix & Matthias Doepke, 2001. "Inequality and Growth: Why Differential Fertility Matters," UCLA Economics Working Papers 803, UCLA Department of Economics.
  15. Ben S. Bernanke & Refet S. Gurkaynak, 2001. "Is Growth Exogenous? Taking Mankiw, Romer and Weil Seriously," NBER Working Papers 8365, National Bureau of Economic Research, Inc.
  16. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Holger Strulik, 2001. "The Role of Human Capital and Population Growth in R&D-Based Models of Economic Growth," Quantitative Macroeconomics Working Papers 20109, Hamburg University, Department of Economics.
  18. Dalgaard, Carl-Johan & Kreiner, Claus Thustrup, 2001. " Is Declining Productivity Inevitable?," Journal of Economic Growth, Springer, vol. 6(3), pages 187-203, September.
  19. Eicher, Theo S, 1996. "Interaction between Endogenous Human Capital and Technological Change," Review of Economic Studies, Wiley Blackwell, vol. 63(1), pages 127-44, January.
  20. Lutz G. Arnold, 2002. "On the Effectiveness of Growth-Enhancing Policies in a Model of Growth Without Scale Effects," German Economic Review, Verein für Socialpolitik, vol. 3(3), pages 339-346, 08.
  21. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  22. Kelley, Allen C. & Schmidt, Robert M., 1995. "Aggregate Population and Economic Growth Correlations: The Role of the Components of Demographic Change," Working Papers 95-37, Duke University, Department of Economics.
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