Population aging and economic growth: A semiparametric panel data analysis

Using panel data of 71 countries for the period 1991-2015, this paper examines how population aging affects the marginal effects of the factors that determine growth. Sub-sample comparisons between the OECD member countries and low and lower-middle income countries are also performed. The analysis is based on a fixed effects panel data varying coefficient model, which assumes that aging affects growth through the slope coefficients on the other explanatory variables. Thus, by construction, the model allows for multiple channels through which aging can influence growth. I estimate the model by a consistent estimator, proposed in the literature, that removes fixed effects using kernel-based weights. Three main findings emerge. First, the marginal effect of total years of schooling on growth is significantly positive and stays somewhat linear as aging increases for both the OECD and low and lowermiddle income countries. Second, the marginal effect of investment on growth increases with aging for the OECD countries, while it is characterized by an inverse-U shaped pattern for low and lower-middle income countries. Finally, the marginal effect of population growth on economic growth is always negative and it increases in magnitude with aging for the OECD countries, while it is characterized by a U-shaped pattern for low and lower-middle income countries.