Population ageing and economic growth in seven OECD countries

It is well known that over the next several decades, there will be significant changes in the age structure of OECD populations. According to recent demographic projections by the United Nations, the share of the old-aged population is expected to double, on average, over the next 50 years in the major industrialised countries. These demographic changes may have significant fiscal and economic consequences and pose important public policy challenges for the countries involved. In this paper, we extend the Hviding and Merette (1998) [Macroeconomics Effects of Pension Reforms in the Context of Ageing: OLG Simulations for Seven OECD Countries. OECD Working Paper no. 201, Paris] computable overlapping-generation (OLG) models for seven industrialised countries in order to examine the impact of population ageing on economic growth. The model is populated by a series of 15 rational overlapping generations that optimally choose life patterns of consumption and bequest. The modified version incorporates endogenous growth, which is generated by the accumulation of both physical and human capital. Typically, a generation invests mostly in human capital when young, and in physical capital when middle-aged. Our results show that estimates of the long-run economic effects of population ageing are significantly altered when the model features endogenous growth. The results suggest that population ageing could create more opportunities for future generations to invest in human capital formation, which would stimulate economic growth and reduce significantly the apprehended negative impact of ageing on output per capita. (C) 1999 Elsevier Science B.V. All rights reserved.