THRESHOLD EFFECTS OF POPULATION AGING ON ECONOMIC GROWTH: A CROSS-COUNTRY ANALYSIS

This paper investigates the threshold effects of population aging on economic growth using country-level panel data covering 98 countries from 1970 to 2015. The overall estimation results indicate significant nonlinear effects on economic growth of the share of the elderly in the total population, with the estimated threshold between 10.1% and 10.9%. Beyond the threshold, deeper population aging begins to have negative effects on economic growth. Second, most of the threshold effects comes from the group of non-OECD countries, i.e., low-income countries, while the insignificant and delayed threshold effects are found in OECD countries, i.e., high- and middle-income countries. Third, as net capital inflows grow, particularly by the debt type, they can increase long-run economic growth in OECD countries, while they overall cause to deteriorate it in non-OECD countries. And finally, for the OECD countries, the positive impacts of capital inflows on growth are partially cancelled out as heightening in degree of population aging. These findings are overall robust to alternative measure of population aging, old-age dependency ratio and alternative country groups such as using US$7,000 in GDP per capita 1990 as reference income level. These results suggest that sufficient human capital investment, adoption of high technologies, and development of economic institutions including financial and foreign exchange markets are recommended in response to upcoming negative effects of population aging on economic growth especially for low-income country.