Current Macroeconomic Effects of Global Demographic Decline

Abstract

Demographic decline–– the process of population aging and decrease–– has the potential to become the defining characteristic of the international economic landscape within our lifetimes. This paper is the first to empirically examine the present macroeconomic effects of demographic decline on a global scale. I use a two-way fixed-effects panel model, checked by a long difference analysis and guided by theoretical predictions from the Solow model of growth; this method is well-suited to investigating a broad scope, and though it cannot prove causation, it can point towards it for future researchers to examine more closely. I find that, over the past decades, (1) countries with shrinking and aging populations tended to shift spending away from capital investment and toward government consumption, (2) the employment rate did not significantly decrease with population aging, and (3) there is some evidence that investment, labor productivity, and per-capita GDP are more dependent on population level in advanced economies than in less developed ones.