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Population Ageing and Economic Growth Education Policy and Family Policy in a Model of Endogenous Growth

:	Sandra Gruescu
:	Population Ageing and Economic Growth Education Policy and Family Policy in a Model of Endogenous Growth
:	Physica-Verlag
:	9783790819069
:	1
:	CHF 85.30
:

:	Volkswirtschaft
:	English

:	206
:	Wasserzeichen/DRM
:	PC/MAC/eReader/Tablet
:	PDF

This book reviews standard economic growth models concentrating on the relationship between population ageing and economic growth and develops a growth model with endogenous human capital and endogenous fertility. This model is used to analyse the effects of education policy and family policy on economic growth. The author presents results both for economic policy, and for economic growth theory.

Introduction(p. 3-4)

1.1 Motivation and main question of this research

A modern society faces two alternatives with regards to its population trend. It can either grow or age. A population which chooses not to grow any more (or which chooses to shrink) will necessarily age. And because of the impossibility of all populations in all countries growing forever, it is likely that every country will face this ageing process at some point in time. Because of this and the importance of economic growth for the well-being of a society, the relationship between an ageing population and economic growth will be relevant for each country. It is already an important and much discussed matter for many. Although population ageing is faced by virtually all industrialised countries, the time frame and the intensity of the process vary.

The substantial changes forecasted for the demographic structure of many countries over coming decades have led to substantial research activity aiming to analyse and quantify the effects of these changes on a nation's economic performance.^ A change in population size and population growth rate can affect both the demand and supply side of an economy. The extent of the effects, however, is not clear.^ The structure of a population (for example, regarding distribution of age or gender) may also influence the economic performance of a society. The reason why age structure should be taken into account when analysing economic issues is aligned with the fact (or in some fields conjecture) that certain behaviours relating to consumption, employment, productivity, etc. depend on a person's age. For example, if an older individual is less productive than a younger person, one could assume that, on an aggregate level, the more older individuals a society possesses, the less productive it is. In addition, even a constant population size does not necessarily mean that the size of the workforce remains constant if the structure of the population is subject to changes.

For example, a change in age structure towards an older population may decrease the size of labour supply because older age-groups tend to have lower labour force participation rates than younger ones. Moreover, the demand side can be affected if a higher share of older people in a population cause different consumption patterns. Problems with regard to the demand side of the economy are not analysed in this thesis, based as it is on the works of the so-called neoclassical growth theory initiated by Solow (1956) and Swan (1956).^ The neoclassical theory is focused on the supply side of an economy, i.e. it is concerned with the growth potential of an economy.^ Another seminal paper in growth theory employed in this thesis is the work by Ramsey (1928) on the household and its utility maximization over time. This thesis is further motivated by the fact that the question"How does an ageing population affect economic growth?" has not been analysed in economic growth models with an infinite planning horizon. The current common approach of analysing the effect of an ageing and/or declining population on economic growth is to run simulations based on equilibrium overlapping generations models.^ In this thesis the focus is on economic growth theory with an infinite planning horizon aiming to determine the factors which affect economic growth. The Solow (1956) and Lucas (1988) economic growth models are widely accepted and employed in both growth theory and growth empirics. This thesis thus augments these two models making them more appropriate for dealing with an ageing population and thus with the effects of an ageing population on economic growth.

We review some of the well-known growth models covering the relationship between population growth and economic growth. In these models, demography is incorporated by focusing exclusively on one demographic variable, the positive and constant growth rate of the population. Neither population decline, i.e. a negative growth rate of the population, nor a shift in the age structure is assumed in these models. We demonstrate that the current economic growth theory fails to provide a description of the demographic change called population ageing and therefore neglects its potential influence on economic growth. The present thesis aims to expand economic growth theory in this area and thus focuses on the age structure and size of a population and their influence on economic growth.

	Acknowledgements	7
	Contents	8
	Part I Population in models of economic growth	12
	Introduction	13
	1.1 Motivation and main question of this research	13
	1.2 Organization of the research	15
	1.3 The ageing population: Trends in Germany, United Kingdom and the USA	16
	The size and the growth rate of population and economic growth	22
	2.1 General literature on ageing population, declining population size and declining population growth rate	22
	2.2 Population in economic growth theory with exogenous technological progress	25
	2.3 Population in economic growth theory with endogenous technological progress	28
	Effects of a declining population in a model of economic growth	40
	3.1 Introduction to a model of economic growth - The Solow (1956) model without technological progress	41
	3.2 The Solow (1956) model with technological progress	57
	3.3 A model of economic growth with human capital - Mankiw, Romer and Weil (1992)	66
	3.4 A model of economic growth with human capital and age structure - Lindh and Malmberg ( 1999)	71
	Effects of a declining population in a model of economic growth with endogenous human capital - Lucas ( 1988)	76
	4.1 The problem of dynamic optimization and its solution	76
	4.2 A model of economic growth with human capital - Lucas (1988)	81
	4.3 A note on the Lucas model	91
	Conclusions of Part I	97
	Part II Models of economic growth with an ageing population	101
	Models of	101
	Models of	101
	102	101
	Models with exogenous population	104
	7.1 Model 1: The Solow (1956) model with an ageing population	104
	7.2 Model 2: The Lucas (1988) model with an ageing population	115
	Models with quasi-endogenous population	125
	8.1 Model 3: The Lucas model with the new time allocation and quasi-endogenous population growth	127
	8.2 Model 4: A model of silver growth with the new time allocation, quasi-endogenous population growth and an ageing population	140
	Models with endogenous population	156
	9.1 Model 5: The Lucas model with the new time allocation and endogenous population growth	156
	9.2 Model 6: A model of silver growth with the new time allocation, endogenous population growth and an ageing population	168
	Conclusions	182
	10.1 Conclusions for economic growth theory	183
	10.2 Conclusions for economic policy	190
	Appendix	194
	11.1 Derivations	194
	List of variables	198
	References	199