Long-run growth and demographic prospects in advanced economies

This paper analyses the long-run growth rates of advanced economies, based on demographic factors. To this end, growth is broken down into two components: growth in productivity (GDP per working-age person) and the projected rate of growth of the working-age population. Productivity is assumed to grow in the long-run at a constant rate equal to that of the technology leader, whereas the demographic projections are those of the United Nations. This simple methodology abstracts from other factors normally considered in the literature on long-term growth, such as the convergence process (we focus on advanced economies) and heterogeneity in participation and employment rates. However, the results do not differ much from those obtained using these other approaches (which are richer, but also more speculative), although the growth rates turn out to be somewhat lower in most cases. They indicate a general deceleration of growth in advanced economies in the coming two decades, due to a slowdown in working-age population growth. Japan, Germany, Italy and Spain face the least favourable growth dynamics in our sample, as these countries face reductions in the size of their workforces. By 2050 France and the United Kingdom could have overtaken Germany to become the largest economies in Europe. In the case of Spain (whose working-age population is expected to peak in 2024) the growth rate of GDP will progressively decline to just below 2% over the following decade.