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Can sustained economic growth and declining population coexist?

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  • Elgin, Ceyhun
  • Tumen, Semih

Abstract

Most of the developed countries have been experiencing sub-replacement fertility. This leads to worries over the sustainability of economic growth in these countries. Given this concern, we ask the following questions: Is there a force that would allow economic growth and declining population to coexist? Is there a mechanism that could reverse the decline in fertility? We argue that returns to human capital in production provide the key to understanding this relation. Our theoretical framework predicts that, when the degree of increasing returns to human capital in traditional production technologies falls, advanced economies switch their productive efforts from labor-oriented technologies that require a constant creation of young workforce toward human capital-oriented technologies that support an ageing population. We call this shift the “endogenous efficiency-augmenting mechanism”. This suggests that sustained economic growth and a declining population can coexist in the long run. Finally, we compare our model against the data and find: (i) The degree of increasing returns to human capital has been falling over time throughout the world along with population growth rates. (ii) Increasing returns to human capital and population growth rates are positively correlated. (iii) Predictions of our model are consistent with what the data reveal.

Suggested Citation

  • Elgin, Ceyhun & Tumen, Semih, 2012. "Can sustained economic growth and declining population coexist?," Economic Modelling, Elsevier, vol. 29(5), pages 1899-1908.
  • Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1899-1908
    DOI: 10.1016/j.econmod.2012.06.004
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    Cited by:

    1. repec:uae:soceng:y:2014:i:1:p:21-34 is not listed on IDEAS
    2. Toshihiko HAYASHI, 2016. "Population as a Source of Long−Term Growth: From Malthus to Japan’s Postmodern Regime," APIR Discussion Paper Series 1005572, Asia Pacific Institute of Research.
    3. Katerina Koka, 2015. "The Impact of the Population Age Structure on the Response to Negative Asset Shocks," Economics Bulletin, AccessEcon, vol. 35(4), pages 2270-2281.
    4. Attar, M. Aykut, 2013. "Growth and Demography in Turkey: Economic History vs. Pro-Natalist Rhetoric," MPRA Paper 47275, University Library of Munich, Germany.
    5. repec:vul:omefvu:v:8:y:2017:i:1:id:216 is not listed on IDEAS
    6. repec:eee:ecmode:v:68:y:2018:i:c:p:435-449 is not listed on IDEAS

    More about this item

    Keywords

    Economic growth; Declining population; Endogenous fertility; Increasing returns;

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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