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Does the old-age dependency ratio place a drag on secular growth?

Author

Listed:
  • Emerson, Patrick
  • Knabb, Shawn
  • Sirbu, Anca-Ioana

Abstract

The secular stagnation hypothesis suggests that population aging (65+) places a drag on long-run growth, but this assertion remains a matter of debate. To address this issue, we use a panel of OECD countries for the years 1975–2014 to estimate the relationship between the old-age dependency ratio (population 65+/population 15–64) and secular growth (10- and 20-year intervals). Our empirical evidence clearly shows that the old-age dependency ratio has a negative effect on growth, confirming the demographic implications of the secular stagnation hypothesis. We also propose an overlapping generations model that explains this pattern in the data. Within this framework, optimizing households invest in their children's human capital and save for retirement. We show that an increase in the old-age dependency ratio reduces productivity through a reduction in human and physical capital as more resources are transferred to the elderly. This reduction in productivity results in slower growth and secular stagnation.

Suggested Citation

  • Emerson, Patrick & Knabb, Shawn & Sirbu, Anca-Ioana, 2024. "Does the old-age dependency ratio place a drag on secular growth?," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1056-1070.
    • Handle: RePEc:eee:ecanpo:v:82:y:2024:i:c:p:1056-1070
    DOI: 10.1016/j.eap.2024.04.026
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    More about this item

    Keywords

    Population aging; Old age dependency; Economic growth; Cross-country panel data;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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