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Population aging, health care, and growth: a comment on the effects of capital accumulation

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Abstract

In a recent paper, Hashimoto and Tabata (J Popul Econ 23:571–593, 2010) present a theoretical model in which the increase in the rate of dependence due to aging of the population leads to a reallocation of labor from non-health to health production and, as a consequence, to a decline in economic growth. We argue that these results rely heavily on assumptions of a “small economy” and perfect capital mobility, which tie down the amount of capital. In this paper, we proceed by analyzing the case of an economy in which the availability of capital is endogenously determined by domestic savings. We find that the new “capital accumulation effect” is opposite to the previous “dependency rate effect,” leaving the effect on economic growth ambiguous. In particular, if the former prevailed, population aging would foster economic growth, a result that finds support in recent empirical work.

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Notes

  1. For example, Edwards (1996) finds a significant negative effect of the old-age dependency rate on the aggregate saving rate, whereas Adams (1971), Gupta (1971), Goldberger (1973), and Ram (1982, 1984) show cases with an insignificant or even a positive effect.

  2. The costs of raising and educating children are exclusively in terms of time.

  3. This specification does not consider the effects of aging on R&D investments (Prettner 2012) nor does it assess the role of government as health-care goods provider (Varvarigos and Zakaria 2012).

  4. The function in Eq. 14 may be convex, concave, or linear, depending on the value of θ.

  5. Note that the wage rate in Eq. 8 is related positively with labor productivity in the non-health sector. Although the relationship appears to also be positive with labor productivity in the health sector in Eq. 9, the parallel decline in the relative price of health goods (see Eq. 10) cancels the positive effect.

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Authors and Affiliations

  1. Facultad de Economía y Empresa, Universidad de Zaragoza, Gran Vía, 2, 50005, Zaragoza, Spain

    Rosa Aisa & Fernando Pueyo

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  1. Rosa Aisa
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  2. Fernando Pueyo
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Correspondence to Fernando Pueyo.

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Responsible editor: Junsen Zhang

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Aisa, R., Pueyo, F. Population aging, health care, and growth: a comment on the effects of capital accumulation. J Popul Econ 26, 1285–1301 (2013). https://doi.org/10.1007/s00148-012-0448-2

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  • DOI: https://doi.org/10.1007/s00148-012-0448-2

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