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Why Nations Become Wealthy: The Effects of Adult Longevity on Saving

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  • Andrew Mason

    (Department of Economics, University of Hawaii at Manoa)

  • Tomoko Kinugasa

    (Graduate School of Economics, Kobe University)

Abstract

Many countries experienced a rema rkable increase in life expectancy during the 20th century, but the development implications have received only modest attention. We analyze steady state and out-of-steady-state effects of the transition in adult longevity on the national saving rate using an overlapping generations model. We show that the national saving rate depends on both the level and rate of change in adult survival. Countries with rapid transitions have particularly elevated saving rates. Empirical evidence is drawn from two sources: long-term historical trends for a small number of countries and world panel data for 1960-95. Two important conclusions are supported by the empirical analysis. First, the demographic transition had a large positive effect on aggregate saving, but over three-quarters of the gain was due to improvements in old-age survival rather than declines in youth dependency. Second, population aging will not lead to a decline in aggregate saving rates. The compositional effect – lower saving rates among the elderly – is dominated by the behavioral effect – individuals will save more to provide for a longer old age.

Suggested Citation

  • Andrew Mason & Tomoko Kinugasa, 2005. "Why Nations Become Wealthy: The Effects of Adult Longevity on Saving," Working Papers 200514, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:200514
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_05-14.pdf
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    References listed on IDEAS

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    Cited by:

    1. Johan Fourie, 2012. "The wealth of the Cape Colony: Measurements from probate inventories," Working Papers 268, Economic Research Southern Africa.
    2. Jane Golley & Rod Tyers, 2006. "Demographic Change and the Labour Supply Constraint," ANU Working Papers in Economics and Econometrics 2006-467, Australian National University, College of Business and Economics, School of Economics.
    3. Maliszewska, Maryla & Ahmed, S. Amer & Cruz, Marcio & Winters, Alan, 2016. "Cashing in the demographic dividend," Conference papers 332794, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Andrew Mason & Sang-Hyop Lee, 2012. "Population, wealth, and economicgrowth in Asia and the Pacific," Chapters, in: Donghyun Park & Sang-Hyop Lee & Andrew Mason (ed.), Aging, Economic Growth, and Old-Age Security in Asia, chapter 2, pages 32-82, Edward Elgar Publishing.
    5. Aylit T. Romm & Martha Wolny, 2012. "The Impact of Later Retirement Ages on Aggregate Household Savings and Saving Rates: An Analysis of OECD Countries," Working Papers 269, Economic Research Southern Africa.
    6. Mason, Andrew & Kinugasa, Tomoko, 2008. "East Asian economic development: Two demographic dividends," Journal of Asian Economics, Elsevier, vol. 19(5-6), pages 389-399.
    7. P. C. Albuquerque, 2015. "Demographics and the Portuguese economic growth," Working Papers Department of Economics 2015/17, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    8. Andrew Mason & Ronald Lee & Sang-Hyop Lee, 2010. "The Demographic Transition and Economic Growth in the Pacific Rim," NBER Chapters, in: The Economic Consequences of Demographic Change in East Asia, pages 19-55, National Bureau of Economic Research, Inc.
    9. Ronald Lee & Andrew Mason, 2010. "Fertility, Human Capital, and Economic Growth over the Demographic Transition [Fécondité, capital humain et croissance économique au cours de la transition démographique]," European Journal of Population, Springer;European Association for Population Studies, vol. 26(2), pages 159-182, May.
    10. Rod Tyers & Jane Golley, 2006. "China's Growth to 2030: The Roles of Demographic Change and Investment Risk," ANU Working Papers in Economics and Econometrics 2006-461, Australian National University, College of Business and Economics, School of Economics.
    11. David E. Bloom & Jocelyn Finlay & Salal Humair & Andrew Mason & Olanrewaju Olaniyan & Adedoyin Soyibo, 2016. "Prospects for Economic Growth in Nigeria: A Demographic Perspective," PGDA Working Papers 12715, Program on the Global Demography of Aging.

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