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Longevity and Life Cycle Savings

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Author Info
David E. Bloom
David Canning
Bryan Graham

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Abstract

We add health and longevity to a standard model of life cycle saving and show that, under plausible assumptions, increases in longevity lead to higher savings rates at every age, even when retirement is endogenous. In a stable population these higher savings rates are offset by increased old age dependency, but during the disequilibrium phase, when longevity is rising, the effect on aggregate savings rates can be substantial. Our results explain the boom in savings in East Asia during 1950-90 as a combination of rising life expectancy and falling youth dependency, though they predict that savings in the region will return to more normal levels as populations age. We also find that falling life expectancies in Africa are associated with declining savings rates.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8808.

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Date of creation: Feb 2002
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Handle: RePEc:nbr:nberwo:8808

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
I12 - Health, Education, and Welfare - - Health - - - Health Production

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  1. Kelley, Allen C & Schmidt, Robert M, 1996. "Saving, Dependency and Development," Journal of Population Economics, Springer, vol. 9(4), pages 365-86, November.
  2. Robert W. Fogel, 1994. "Economic Growth, Population Theory, and Physiology: The Bearing of Long-Term Processes on the Making of Economic Policy," NBER Working Papers 4638, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. John Strauss & Duncan Thomas, 1998. "Health, Nutrition, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 766-817, June. [Downloadable!] (restricted)
    Other versions:
  4. David E. Bloom & David Canning, 2004. "The Health and Wealth of Africa," World Economics, World Economics, Economic & Financial Publishing, PO Box 69, Henley-on-Thames, Oxfordshire, United Kingdom, RG9 1GB, vol. 5(2), pages 57-81, April. [Downloadable!]
  5. Higgins, Matthew, 1998. "Demography, National Savings, and International Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 343-69, May.
  6. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June. [Downloadable!] (restricted)
  7. Leff, Nathaniel H, 1969. "Dependency Rates and Savings Rates," American Economic Review, American Economic Association, vol. 59(5), pages 886-96, December. [Downloadable!] (restricted)
  8. Mark Bils & Peter J. Klenow, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December. [Downloadable!] (restricted)
  9. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 1, Center for International Development at Harvard University. [Downloadable!]
  10. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  11. Robert M. Schmidt & Allen C. Kelley, 1996. "Saving, dependency and development," Journal of Population Economics, Springer, vol. 9(4), pages 365-386.
  12. Angus Deaton & Christina H. Paxson, 1993. "Saving, Growth, and Aging in Taiwan," NBER Working Papers 4330, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Sebnem Kalemli-Ozcan & David N. Weil, 2002. "Mortality Change, the Uncertainty Effect, and Retirement," NBER Working Papers 8742, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Masson, Paul R & Bayoumi, Tamim & Samiei, Hossein, 1998. "International Evidence on the Determinants of Private Saving," World Bank Economic Review, Oxford University Press, vol. 12(3), pages 483-501, September.
    Other versions:
  15. Kalemli-Ozcan, Sebnem & Ryder, Harl E. & Weil, David N., 2000. "Mortality decline, human capital investment, and economic growth," Journal of Development Economics, Elsevier, vol. 62(1), pages 1-23, June. [Downloadable!] (restricted)
  16. Gallup, J.L. & Sachs, J.D. & Mullinger, A., 1999. "Geography and Economic Development," Papers 1, Chicago - Graduate School of Business.
  17. 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. [Downloadable!] (restricted)
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  18. Ronald D Lee & Andrew Mason & Tim Miller, 1998. "Saving, Wealth, and Population," Working Papers 199805, University of Hawaii at Manoa, Department of Economics.
  19. Kokila Doshi, 1994. "Determinants Of The Saving Rate: An International Comparison," Contemporary Economic Policy, Western Economic Association International, vol. 12(1), pages 37-45, 01. [Downloadable!] (restricted)
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