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Human capital formation and macroeconomic performance in an ageing small open economy

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  • Heijdra, Ben J.
  • Romp, Ward E.

Abstract

We study the effects of stylized demographic and fiscal shocks on the macroeconomic performance of an industrialized small open economy. We construct an overlapping-generations model which incorporates a realistic description of the mortality process. Agents engage in educational activities at the start of life and thus create human capital to be used later on in life for production purposes. Simple and intuitive expressions are derived which demonstrate the key economic and demographic mechanisms that are operating in the model. The engine of growth during the demographic transition is an intergenerational externality in the production of human capital. In a calibrated version of our model, we find that the effects of increased longevity on human capital formation are small whereas the reduction in fertility has a rather strong effect.

Suggested Citation

  • Heijdra, Ben J. & Romp, Ward E., 2009. "Human capital formation and macroeconomic performance in an ageing small open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 33(3), pages 725-744, March.
    • Handle: RePEc:eee:dyncon:v:33:y:2009:i:3:p:725-744
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    Cited by:

    1. Vogel, Edgar & Ludwig, Alexander & Börsch-Supan, Axel, 2017. "Aging and pension reform: extending the retirement age and human capital formation," Journal of Pension Economics and Finance, Cambridge University Press, vol. 16(1), pages 81-107, January.
    2. Heer, Burkhard & Irmen, Andreas, 2014. "Population, pensions, and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 46(C), pages 50-72.
    3. Kronenberg, Tobias, 2009. "The impact of demographic change on energy use and greenhouse gas emissions in Germany," Ecological Economics, Elsevier, vol. 68(10), pages 2637-2645, August.
    4. Jan Acedański & Julia Włodarczyk, 2018. "Demographics, retirement age, and real interest rates in Poland," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 10(4), pages 355-385, December.
    5. Alexander Ludwig & Edgar Vogel, 2010. "Mortality, fertility, education and capital accumulation in a simple OLG economy," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 703-735, March.
    6. Ben J. Heijdra & Jochen O. Mierau, 2009. "Annuity Market Imperfection, Retirement and Economic Growth," CESifo Working Paper Series 2717, CESifo.
    7. Ben J. Heijdra & Laurie S. M. Reijnders, 2016. "Human Capital Accumulation and the Macroeconomy in an Ageing Society," De Economist, Springer, vol. 164(3), pages 297-334, September.
    8. Nina Boberg-Fazlic, 2012. "Longevity and Schooling: The Case of Retirement," Discussion Papers 12-15, University of Copenhagen. Department of Economics.
    9. Sau-Him Lau, 2013. "Does longevity improvement always raise the length of schooling through the longer-horizon mechanism?," 2013 Meeting Papers 292, Society for Economic Dynamics.
    10. Ivan Frankovic & Michael Kuhn & Stefan Wrzaczek, 2020. "On the Anatomy of Medical Progress Within an Overlapping Generations Economy," De Economist, Springer, vol. 168(2), pages 215-257, June.
    11. Arthur Jacobs & Freddy Heylen, 2021. "Demographic change, secular stagnation and inequality: automation as a blessing?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 21/1030, Ghent University, Faculty of Economics and Business Administration.
    12. Irmen, Andreas, 2009. "Population Aging and the Direction of Technical Change," Working Papers 0493, University of Heidelberg, Department of Economics.
    13. Thomas Ziesemer & Anne von Gässler, 2021. "Ageing, human capital and demographic dividends with endogenous growth, labour supply and foreign capital," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 20(2), pages 129-160, May.
    14. Wei, Taoyuan & Zhu, Qin & Glomsrød, Solveig, 2018. "How Will Demographic Characteristics of the Labor Force Matter for the Global Economy and Carbon Dioxide Emissions?," Ecological Economics, Elsevier, vol. 147(C), pages 197-207.
    15. Vogel, Edgar & Ludwig, Alexander & Börsch-Supan, Axel, 2011. "Aging and Pension Reform in a Two-Region World: The Role of Human Capital," MEA discussion paper series 11246, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    16. Cai, Zhipeng & Lau, Sau-Him Paul, 2017. "Impact of mortality reductions on years of schooling and expected lifetime labor supply," Journal of Mathematical Economics, Elsevier, vol. 72(C), pages 134-144.

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