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Why Nations Become Wealthy: The Effects of Adult Longevity on Saving

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  • Andrew Mason

    ()
    (Department of Economics, University of Hawaii at Manoa)

  • Tomoko Kinugasa

    ()
    (Graduate School of Economics, Kobe University)

Abstract

Many countries experienced a rema rkable increase in life expectancy during the 20th century, but the development implications have received only modest attention. We analyze steady state and out-of-steady-state effects of the transition in adult longevity on the national saving rate using an overlapping generations model. We show that the national saving rate depends on both the level and rate of change in adult survival. Countries with rapid transitions have particularly elevated saving rates. Empirical evidence is drawn from two sources: long-term historical trends for a small number of countries and world panel data for 1960-95. Two important conclusions are supported by the empirical analysis. First, the demographic transition had a large positive effect on aggregate saving, but over three-quarters of the gain was due to improvements in old-age survival rather than declines in youth dependency. Second, population aging will not lead to a decline in aggregate saving rates. The compositional effect – lower saving rates among the elderly – is dominated by the behavioral effect – individuals will save more to provide for a longer old age.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_05-14.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200514.

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Length: 38 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:hai:wpaper:200514

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References

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  1. World Bank, 2003. "World Development Indicators 2003," World Bank Publications, The World Bank, number 13920, January.
  2. Paul R. Gregory & Manouchehr Mokhtari & Wolfram Schrettl, 1999. "Do The Russians Really Save That Much? - Alternate Estimates From The Russian Longitudinal Monitoring Survey," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 694-703, November.
  3. Leung, Siu Fai, 1994. "Uncertain Lifetime, the Theory of the Consumer, and the Life Cycle Hypothesis," Econometrica, Econometric Society, vol. 62(5), pages 1233-39, September.
  4. Kuehlwein, Michael, 1993. "Life-Cycle and Altruistic Theories of Saving with Lifetime Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 38-47, February.
  5. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers 553, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. David E. Bloom & David Canning & Bryan Graham, 2002. "Longevity and Life Cycle Savings," NBER Working Papers 8808, National Bureau of Economic Research, Inc.
  7. repec:fth:harver:1490 is not listed on IDEAS
  8. Ronald D Lee & Andrew Mason & Tim Miller, 1998. "Saving, Wealth, and Population," Working Papers 199805, University of Hawaii at Manoa, Department of Economics.
  9. Kelley, Allen C & Schmidt, Robert M, 1996. "Saving, Dependency and Development," Journal of Population Economics, Springer, vol. 9(4), pages 365-86, November.
  10. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, vol. 89(3), pages 561-77, June.
  11. Junji Kageyama, 2003. "The Effects of A Continuous Increase in Lifetime on Saving," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(2), pages 163-183, 06.
  12. Zilcha, Itzhak & Friedman, Joseph, 1985. "Saving behavior in retirement when life horizon is uncertain," Economics Letters, Elsevier, vol. 17(1-2), pages 63-66.
  13. Deaton, A. & Paxson, C., 1998. "Growth, Demographic Structure, and National Saving in Taiwan," Papers 183, Princeton, Woodrow Wilson School - Development Studies.
  14. Robert M. Schmidt & Allen C. Kelley, 1996. "Saving, dependency and development," Journal of Population Economics, Springer, vol. 9(4), pages 365-386.
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Cited by:
  1. Johan Fourie, 2012. "The wealth of the Cape Colony: Measurements from probate inventories," Working Papers 268, Economic Research Southern Africa.
  2. Andrew Mason & Ronald Lee & Sang-Hyop Lee, 2010. "The Demographic Transition and Economic Growth in the Pacific Rim," NBER Chapters, in: The Economic Consequences of Demographic Change in East Asia, NBER-EASE Volume 19, pages 19-55 National Bureau of Economic Research, Inc.
  3. Aylit Tina Romm & Martha Wolny, 2012. "The Impact of Later Retirement Ages on Aggregate Household Savings and Saving Rates: An Analysis of OECD Countries," Working Papers 269, Economic Research Southern Africa.

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