Is Population Aging Deflationary in Developing Countries?

The relationship between population aging and inflation has received persuasive attention recently from researchers and policymakers. The existing studies focus mainly on developed countries. According to the (United Nations. (2022). Department of Economic and Social Affairs, Population Division. World population prospects 2022: Summary of results. UN DESA/POP/2022/TR/NO. 3) report, the older population in Northern Africa & Western Asia, Central & Southern Asia, Eastern & South-Eastern Asia, and Latin America & Caribbean regions will grow by more than 100 percent between 2022 and 2050. Thus, shifting the discussion from the developed to the developing countries is critical. This paper seeks to fill a significant gap by addressing the experiences of developing countries. We use panel data for 67 countries (22 developed and 45 developing) from 1970 to 2022. The regression analysis uses ordinary least squares and fixed effects (including country-specific and region-specific time trends). The estimates from baseline models may be biased due to cross-sectional dependency, so we consider the Driscoll-Kraay fixed effect estimator. Also, the Wu-Hausman test confirms that our results do not suffer from endogeneity. The paper's contribution is twofold: i. We find a negative relationship between aging and inflation by including developing countries covering 66 percent of the world's population. These findings are robust to the 10-year average, alternative measures of aging, and additional controls; ii. Ours is the first study, especially for developing countries, to empirically test the role of the fertility rate, population growth, and political channels to explain the deflationary pressure of population aging. The study also discusses different policy measures, including raising the retirement age to mitigate the impact of aging.