Skip to main content

Advertisement

SpringerLink
Log in

Population aging and structural over/underinvestment

  • Published:
Economic Change and Restructuring Aims and scope Submit manuscript

Abstract

Demographic characteristics are mostly considered one of the most important structural factors influencing the equilibrium rate of investments and capital-to-output ratio. Current research does not identify structurally over/underinvested countries reflecting future population aging the countries face up in near decades. Using the implied equilibrium approach, the article analyzes structurally over/underinvested economies in the panel of 154 countries from 2005 to 2017. It verifies whether structural over/underinvestment is related to the expected aging of the population represented by the United Nations’ prediction of the old dependency ratio. The results show that the predicted future old-age dependency ratio determines the rate of capital accumulation. It also indicates that identified extent of overinvestment is distinctly larger than the extent of underinvestment and that the frequency of over/underinvested countries declines with a longer horizon of demographic prediction. A set of long-term and medium-term structurally over/underinvested countries is identified that might help the economic policymakers adopt adequate measures to make the capital optimally used. The robustness checks confirm that the estimations are not significantly influenced by potential endogeneity, choice of alternative demographic variables representing population aging, and alternative country’s institutional quality characteristics.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8
Fig. 9
Fig. 10
Fig. 11
Fig. 12
Fig. 13

Similar content being viewed by others

References

  • Abel AB, Eberly JC (1999) The effects of irreversibility and uncertainty on capital accumulation. J Monet Econ 44(3):339–377

    Article  Google Scholar 

  • Acosta P, Loza A (2005) Short and long run determinants of private investment in Argentina. J Appl Econ 8(2):389–406

    Article  Google Scholar 

  • Adhikary BK, Kutsuna K, Stephannie S (2021) Does the government credit guarantee promote micro, small, and medium enterprises? Evidence from Indonesia. J Small Bus Entrep 33(3):323–348

    Article  Google Scholar 

  • Ahituv A (2001) Be fruitful or multiply: On the interplay between fertility and economic development. J Popul Econ 14:51–71

  • Arestis P, Sawyer M (2005) Aggregate demand, conflict and capacity in the inflationary process. Camb J Econ 29(6):959–974

    Article  Google Scholar 

  • Arvis JF et.al. (2016) Connecting to compete: Trade logistics in the global economy. The logistics performance index and its indicators. Int Bank Reconstr Dev World Bank 2016

  • Asada T (2012) Monetary stabilization policy by means of the Taylor rule in a dynamic Keynesian model with capital accumulation. In: Keynes and Modern Economics. Routledge, pp 153–172

  • Backus DK, Cooley TF, Henriksen E (2014) Demography and low-frequency capital flows. J Int Econ 92:94–102

    Article  Google Scholar 

  • Bai C, Hsieh C, Qian Y (2006) The return to capital in China. Brookings papers on economic activity, No. 2, 61-88

  • Barnichon R, Figura A (2016) Declining desire to work and downward trends in unemployment and participation. NBER Macroecon Annu 30(1):449–494

    Article  Google Scholar 

  • Barro RJ, Sala-i-Martin X (2004) Economic growth. MIT Press, Cambridge, Mass

    Google Scholar 

  • Bauducco S, Janiak A (2018) The macroeconomic consequences of raising the minimum wage: capital accumulation, employment and the wage distribution. Eur Econ Rev 101:57–76

    Article  Google Scholar 

  • Blanchard O (1985) Debt, deficits and finite horizons. J Polit Econ 93:223–247

    Article  Google Scholar 

  • Bloom DE, Williamson JG (1998) Demographic transitions and economic miracles in emerging Asia. World Bank Econ Rev 12(3):419-455

  • Borio C, Disyatat P, Juselius M, Rungcharoenkitkul P (2017) Why so low for so long? A long-term view of real interest rates. In: BIS Working Paper No. 685

  • Börsch-Supan A, Ludwig A, Winter J (2002) Aging, pension reform, and capital flows. In: Auerbach A, Hermann H (eds) Aging, financial markets and monetary policy. Springer, Heidelberg, pp 55–83

    Chapter  Google Scholar 

  • Brandner JA, Dowrick S (1994) The role of fertility and population in economic growth: empirical results from aggregate cross-national data. J Popul Econ 7:1–25

    Article  Google Scholar 

  • Buiter WH (1988) Death, birth, productivity growth and debt neutrality. Economic Journal 98:279–293

    Article  Google Scholar 

  • Ca’Zorzi M, Chudik A, Dieppe A (2012) Thousands of models, one story: current account imbalances in the global economy. J Int Money Finance 31(6):1319–1338

    Article  Google Scholar 

  • Cai F (2015) Demographic change and its consequences for the labor market. In Managing the Middle-Income Transition, Edward Elgar Publishing, pp 453–476

  • Canning D (2011) The causes and consequences of demographic transition. Popul Stud 65(3):353–361

    Article  Google Scholar 

  • Cardarelli R, Terrones M (2005) Global imbalances: a saving and investment perspective. Staff studies for the World Economic Outlook (chapter 2). International Monetary Fund, Washington.

  • Carvalho C, Ferrero A, Nechio F (2016) Demographics and real interest rates: Inspecting the mechanism. Euro Econ Rev 88(C):208–226

    Article  Google Scholar 

  • Chen B, Lin JY (2021) Development strategy, resource misallocation and economic performance. Struct Change Econ Dyn 59:612–634

    Article  Google Scholar 

  • Chou NT, Izyumov A, Vahaly J (2018) Capital profitability and economic growth. J Econ Dev Stud 6:12–18

    Article  Google Scholar 

  • Choudhry MT, Marelli E, Signorelli M (2016) Age dependency and labour productivity divergence. Appl Econ 48(50):4823–4845

    Article  Google Scholar 

  • Christensen JH, Rudebusch GD (2019) A new normal for interest rates? Evidence from inflation-indexed debt. Rev Econ Stat 101(5):933–949

    Article  Google Scholar 

  • Christodoulakis N, Axioglou C (2017) Underinvestment and unemployment: the double hazard in the euro area. Appl Econ Q 63(1):49–80

    Article  Google Scholar 

  • Cooley TF, Henriksen E (2018) The demographic deficit. J Monet Econ 93:45–62

    Article  Google Scholar 

  • Corneli F (2009) The saving glut explanation of global imbalances. In: The Role of Underinvestment EUI ECO working paper no. 2009/41.

  • Crary DB (2000) Labor quality, natural unemployment, and US inflation. Q Rev Econ Finance 40(3):325–336

    Article  Google Scholar 

  • Cravino J, Levchenko A, Rojas M (2022) Population aging and structural transformation. Am Econ J Macroecon 14(4):479–498

    Article  Google Scholar 

  • Crowley PM, Hallett AH (2014) The great moderation under the microscope: decomposition of macroeconomic cycles in US and UK aggregate demand. In: Wavelet applications in economics and finance. Springer, Cham, pp 47–71

  • Cubeddu L, Rıos-Rull JV (1997) Marital risk and capital accumulation. In: Staff report 235, federal reserve bank of Minneapolis

  • Cullmann A, Stiel C (2022) Cost and productivity effects of demographic changes on local water service. Utilities Policy 79:101435

    Article  Google Scholar 

  • Cúrdia V, Ferrero A, Ng G, Tambalotti A (2015) Has U.S. monetary policy tracked the efficient interest rate? J Monetary Econ 70(C1):72–83

    Article  Google Scholar 

  • d’Albis H (2007) Demographic structure and capital accumulation. J Econ Theory 132(1):411–434

    Article  Google Scholar 

  • Dalmazzo A, Marini G (2000) Foreign debt, sanctions and investment: a model with politically unstable less developed countries. Int J Financ Econ 5(2):141–153

    Article  Google Scholar 

  • De la Croix D, Pierrard O, Sneessens HR (2013) Aging and pensions in general equilibrium: labor market imperfections matter. J Econ Dyn Control 37(1):104–124

    Article  Google Scholar 

  • Dedry A, Onder H, Pestieau P (2017) Aging, social security design, and capital accumulation. J Econ Ageing 9:145–155

    Article  Google Scholar 

  • Diamond PA (1965) National debt in a neoclassical growth model. Am Econ Rev 55:1126–1150

    Google Scholar 

  • Driver C, Temple P (2012) Underinvestment or/and Overinvestment?. In: The Unbalanced Economy. Palgrave Macmillan, London, pp 87–106

  • Eggertsson GB, Mehrotra NR, Robbins JA (2019) A model of secular stagnation: theory and quantitative evaluation. Am Econ J Macroecon 11(1):1–48

    Article  Google Scholar 

  • Feenstra RC, Inklaar R, Timmer MP (2015) The next generation of the Penn World Table. Am Econ Rev 105(10):3150–3231

    Article  Google Scholar 

  • Feenstra RC, Inklaar R, Timmer MP (2013) PWT 8.0 - a user guide

  • Feichtinger G, Hartl RF, Kort PM, Veliov VM (2006) Anticipation effects of technological progress on capital accumulation: a vintage capital approach. J Econ Theory 126(1):143–164

    Article  Google Scholar 

  • Feijo C, Lamônica MT, Bastos JCA (2016) Why does the investment rate not increase? Capital accumulation and stabilization policy in the 1990s and 2000s in Brazil. J Post Keynes Econ 39(4):539–561

    Article  Google Scholar 

  • Feroli M (2003) Capital flows among the G-7 nations: a demographic perspective. In: FEDS Working Paper 2003–54, Federal Reserve Board.

  • Ferrero G, Gross M, Neri S (2019) On secular stagnation and low interest rates: demography matters. Int Finance 22(3):262–278

    Article  Google Scholar 

  • Feyrer J (2007) Demographics and productivity. Rev Econ Stat 89:100–109

    Article  Google Scholar 

  • Fund for Peace (2021) Fragile states index annual report 2021. Fund for Peace, Washington, D.C.

    Google Scholar 

  • Gagnon E, Johannsen BK, Lopez-Salido D (2021) Understanding the new normal: THE role of demographics. IMF Econ Rev 69:357–390

    Article  Google Scholar 

  • Gordon R (2016) The rise and fall of American growth: The U.S. standard of living since the Civil War. Princeton University Press

  • Grigoli F, Herman A, Schmidt-Hebbel K (2018) Saving in the world. World Dev 104:257–270

    Article  Google Scholar 

  • Gros D, Alcidi C (2015) The global economy in 2030. Trends and strategies for Europe. Centre for European policy studies (CEPR), Brussels

  • Gros D (2014) Investment as the key to recovery in the euro area? CEPS Policy Briefs 326

  • Gu T (2014) Distorted factor markets, government intervention, and excess capital accumulation: the case of China. Theor Econ Lett 4(09):806

    Article  Google Scholar 

  • Guest R (2011) Population ageing, capital intensity and labour productivity. Pac Econ Rev 16(3):371–388

    Article  Google Scholar 

  • Guest R, Swift R (2008) Fertility, income inequality, and labour productivity. Oxf Econ Pap 60(4):597–618

    Article  Google Scholar 

  • Guimaraes SD, Tiryaki GF (2020) The impact of population aging on business cycles volatility: international evidence. J Econ Ageing 17:100285

    Article  Google Scholar 

  • Hall RE (1980) Stabilization policy and capital formation. Am Econ Rev 70(2):157–163

    Google Scholar 

  • Higgins M (1997) Demography, national savings and international capital flows. In: Staff Reports 34, Federal Reserve Bank of New York.

  • Holston K, Laubach T, Williams J (2017) Measuring the natural rate of interest: international trends and determinants. J Int Econ 108:S59–S75

    Article  Google Scholar 

  • Hunady J, Orviska M (2014) Determinants of Foreign Direct Investments in EU countries - Do Corporate Taxes Really Matter? Proc Econ Finance 12 (2014)

  • Ikeda D, Saito M (2014) The effects of demographic changes on the real interest rate in Japan. Jpn World Econ 32:37–48

    Article  Google Scholar 

  • Jäger P, Schmidt T (2016) The political economy of public investment when population is aging: a panel cointegration analysis. Eur J Polit Econ 43:145–158

    Article  Google Scholar 

  • Knight J, Ding S (2010) Why does China invest so much? Asian Econ Pap 9(3):87–117

    Article  Google Scholar 

  • Krashevski RS (1988) What is so natural about high unemployment? Am Econ Rev 78(2):289–293

    Google Scholar 

  • Lau SHP (2009) Demographic structure and capital accumulation: a quantitative assessment. J Econ Dyn Control 33(3):554–567

    Article  Google Scholar 

  • Lee IH, Syed M, Xueyan L (2012) Is China over-investing and does it matter? In: IMF working paper WP/12/277.

  • Lindh T, Malmberg B (1999) Age Structure Effects and Growth in the OECD 1950–1990. J Popul Econ 12:431–449

    Article  Google Scholar 

  • Loayza N, Schmidt-Hebbel K, Serven L (2000) What drives private saving across the world? Rev Econ Stat 82(2):165–181

    Article  Google Scholar 

  • Lu F, Song G, Tang J, Zhao W, Liu L (2008) Profitability of China’s industrial firms (1978–2006). China Econ J 1(1):1–31

    Article  Google Scholar 

  • Ludwig A, Vogel E (2010) Mortality, fertility, education and capital accumulation in a simple OLG economy. J Popul Econ 23:703–735

    Article  Google Scholar 

  • Luhrmann M (2003) Demographic change, foresight and international capital flows. MEA discussion paper series 03038, Munich Center for the Economics of Aging at the Max Planck Institute for Social Law and Social Policy.

  • Maestas N, Mullen KJ, Powell D (2016) The effect of population aging on economic growth, the labor force and productivity. In: NBER Working Papers 22452.

  • McMahon WW (2018) The total return to higher education: Is there underinvestment for economic growth and development? Q Rev Econ Finance 70:90–111

    Article  Google Scholar 

  • Mierau JO, Turnovsky SJ (2014) Capital accumulation and the sources of demographic change. J Popul Econ 27:857–894

    Article  Google Scholar 

  • Miles D (1999) Modelling the impact of demographic change upon the economy. Econ J 109(452):1–36

    Article  Google Scholar 

  • Milesi-Ferretti GM, Razin A (1996) Current account sustainability: selected East Asian and Latin American experiences. In: National Bureau of Economic Research, Working Paper Series No. 5791.

  • Miller T, Kim AB, Roberts JM (2021) 2021 index of economic freedom. Heritage Foundation, Washington, DC

    Google Scholar 

  • Momota A (2016) Intensive and extensive margins of fertility, capital accumulation, and economic welfare. J Public Econ 133(C):90–110

    Article  Google Scholar 

  • Nguyen DT, Smith C (2007) Capital stock, labour productivity and per capita output in the states of Australia, 1984/5-2003/4. Aust J Regional Stud 13(2):181–204

    Google Scholar 

  • Obstfeld M, Rogoff K (1995) The intertemporal approach to the current account. Handb Int Econ 3:1731–1799

    Article  Google Scholar 

  • Papetti A (2021) Demographics and the natural real interest rate: historical and projected paths for the euro area. J Econ Dyn Control 132:104209

    Article  Google Scholar 

  • Park J (2017) Sovereign default and capital accumulation. J Int Econ 106:119–133

    Article  Google Scholar 

  • Pessoa JP, Van Reenen J (2014) The UK productivity and jobs puzzle: does the answer lie in wage flexibility? Econ J 124(576):433–452

    Article  Google Scholar 

  • Rawski T (2002) Will investment behavior constrain China’s growth? China Econ Rev 13:361–372

    Article  Google Scholar 

  • Razin A (1993) The dynamic-optimizing approach to the current account: theory and evidence. In: National Bureau of Economic Research, Working Paper Series No. 4334.

  • Schnabl G (2019) China’s overinvestment and international trade conflicts. Chin World Econ 27(5):37–62

    Article  Google Scholar 

  • Servén L (1998) Macroeconomic uncertainty and private investment in LDCs: an empirical investigation. In: The World Bank, September 1998.

  • Shioji E, Vu TK (2012) Physical capital accumulation in Asia 12: past trends and future projections. Jpn World Econ 24(2):138–149

    Article  Google Scholar 

  • Siliverstovs B, Kholodilin KA, Thiessen U (2011) Does aging influence structural change? Evid Panel Data Econ Syst 35(2):244–260

    Article  Google Scholar 

  • Solow RM (1956) A contribution to the theory of economic growth. Quart J Econ 70(1)

  • Song S (2013) Demographic changes and economic growth: empirical evidence from Asia. Honors Projects 121

  • Stirati A (2017) Wealth, capital and the theory of distribution: Some implications for Piketty’s analysis. Rev Polit Econ 29(1):47–63

    Article  Google Scholar 

  • Stockhammer E, Guschanski A, Köhler K (2014) Unemployment, capital accumulation and labour market institutions in the Great Recession. Euro J Econ Econ Polic Interv 11(2):182–194

    Google Scholar 

  • Sudo N, Takizuka Y (2020) Population aging and the real interest rate in the last and next 50 years: a tale told by an overlapping generations model. Macroecon Dyn 24(8):2060–2103

    Article  Google Scholar 

  • Summers LH (2014) U.S. economic prospects: secular stagnation, hysteresis, and the zero lower bound. Bus Econ 49(2):65–73

    Article  Google Scholar 

  • Summers LH (2016) The age of secular stagnation. Foreign Aff 95(2):2–9

    Google Scholar 

  • Ucan O (2014) The determinants of investment: panel data analysis of G7 countries. Euro J Sci Res

  • United Nations Department of Economic and Social Affairs, Population Division (2022) World Population Prospects 2022: Summary of Results. UN DESA/POP/2022/TR/NO. 3.

  • United Nations, Department of Economic and Social Affairs, Population Division (2015) World population prospects: the 2015 Revision, key findings and advance tables. In: Working Paper No. ESA/P/WP.241.

  • Voigtländer N, Voth HJ (2006) Why England? Demographic factors, structural change and physical capital accumulation during the Industrial Revolution. J Econ Growth 319–361.

  • Weil P (1989) Overlapping families of infinitely-lived agents. J Public Econ 38:183–198

    Article  Google Scholar 

  • Werding M (2008) Ageing and productivity growth: are there macro-level cohort effects of human capital? In: CESifo Working Paper Series 2207.

  • Yang Z, Lu Y, Tan W (2021) Monetary policy tightening, accounting information comparability, and underinvestment: evidence from China. Econ Anal Policy 70:123–147

    Article  Google Scholar 

  • Yi Kei-Mu, Zhang J (2017) Understanding global trends in long-run real interest rates. Economic Perspectives 2/2017, Federal Reserve Bank of Chicago.

Download references

Funding

We dedicated the article to two projects: IP100040 and IGA F1/3/2020.

Author information

Authors and Affiliations

  1. Prague University of Economics and Business, W. Churchill Sq. 4, 130 67, Prague, Czech Republic

    Karel Brůna & Jiří Pour

Authors
  1. Karel Brůna
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Jiří Pour
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Karel Brůna.

Ethics declarations

Conflict of interest

Disclosure of potential conflicts of interest: The authors declare no conflict of interest.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendix

Appendix

See Tables

Table 9 Panel stationarity tests (all variables)
Full size table

9 and

Table 10 Residual panel stationarity tests (benchmark models)
Full size table

10, Figs. 

Fig. 14
figure 14

Old dependancy ratio by regions and year (all UN countries)

Full size image

14,

Fig. 15
figure 15

Old dependancy ratio by country’s income and year (all UN countries)

Full size image

15,

Fig. 16
figure 16

Overinvested countries based on capital-to-output model

Full size image

16 and

Fig. 17
figure 17

Underinvested countries based on capital-to-output model

Full size image

17.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Brůna, K., Pour, J. Population aging and structural over/underinvestment. Econ Change Restruct 56, 2339–2383 (2023). https://doi.org/10.1007/s10644-023-09517-5

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10644-023-09517-5

Keywords

JEL Classification

Search

Navigation