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Capital- and Labor-Saving Technical Change in an Aging Economy

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  • Andreas Irmen

    (CREA, Université du Luxembourg)

Abstract

Does population aging and the associated increase in the old-age dependency ratio affect economic growth ? The answer is given in a novel analytical framework that allows for population aging to affect endogenous capital- and labor-saving technical change. The short-run analysis reveals that population aging induces more labor- and less capital-saving technical change as it increases the relative scarcity of labor with respect to capital. Due to external contemporaneous knowledge spill-overs across innovating firms induced technical change has a first-order effect on current aggregate income. In the long-run capitalsaving technical progress vanishes, and the economy’s growth rate reflects only labor-saving technical change. However, the mere possibility of capital-saving technical change is shown to imply that the economy’s steady-state growth rate becomes independent of its age structure: neither a higher life-expectancy nor a decline in fertility affects economic growth in the long run.

Suggested Citation

  • Andreas Irmen, 2013. "Capital- and Labor-Saving Technical Change in an Aging Economy," DEM Discussion Paper Series 13-27, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:13-27
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    File URL: https://hdl.handle.net/10993/12252
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    Cited by:

    1. Maik T. Schneider & Ralph Winkler, 2021. "Growth and Welfare under Endogenous Lifetimes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(4), pages 1339-1384, October.
    2. Gehringer, Agnieszka & Prettner, Klaus, 2019. "Longevity And Technological Change," Macroeconomic Dynamics, Cambridge University Press, vol. 23(4), pages 1471-1503, June.
    3. Andreas Irmen, 2021. "Automation, growth, and factor shares in the era of population aging," Journal of Economic Growth, Springer, vol. 26(4), pages 415-453, December.
    4. Li, Defu & Bental, Benjamin & Huang, Jiuli, 2016. "Stationary Growth and the Impossibility of Capital Efficiency Gains," MPRA Paper 71516, University Library of Munich, Germany.
    5. Dong, Qi & Murakami, Tomoaki & Nakashima, Yasuhiro, 2021. "Induced Bias of Technological Change in Agriculture and Structural Transformation: A Translog Cost Function Analysis of Chinese Cereal Production," 2021 Conference, August 17-31, 2021, Virtual 315373, International Association of Agricultural Economists.
    6. Irmen Andreas, 2020. "Editorial introduction," Economics and Business Review, Sciendo, vol. 6(2), pages 3-6, June.
    7. Irmen, Andreas & Litina, Anastasia, 2022. "Population Aging And Inventive Activity," Macroeconomic Dynamics, Cambridge University Press, vol. 26(5), pages 1127-1161, July.
    8. Irmen Andreas, 2020. "Endogenous task-based technical change—factor scarcity and factor prices," Economics and Business Review, Sciendo, vol. 6(2), pages 81-118, June.
    9. Tabakovic, Amer & Irmen, Andreas, 2014. "Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100602, Verein für Socialpolitik / German Economic Association.
    10. Kazila Erikenovich Kubayev, 2018. "The Process of Fund-Saving In the Theory of Innovative Economy," The Journal of Social Sciences Research, Academic Research Publishing Group, pages 149-156:3.

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    More about this item

    Keywords

    Demographic Transition; Capital Accumulation; Direction of Technical Change;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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