Endogenous Depopulation and Economic Growth

Fertility rates have declined dramatically across almost all high-income countries over the past decades. This has raised concerns about future economic prospects. Indeed, fully– and semi–endogenous growth models imply that a shrinking workforce would lead to declining income growth and perhaps even stagnation. We extend the previous analyses to explicitly incorporate an endogenous quantity/quality trade-off between fertility and human capital accumulation. This allows us to assess the extent to which a declining number of workers can be compensated by increasing education. Our analysis demonstrates that economic growth needs not necessarily to decline with a falling population. Under certain conditions, human capital investment can sustain technological progress and economic growth despite the demographic challenges we are facing.