MPIDR Working Paper

The role of demography on per capita output growth and saving rates

Sánchez Romero, M.
MPIDR Working Paper WP-2011-015, 29 pages.
Rostock, Max Planck Institute for Demographic Research (September 2011)
Open Access


Computable OLG growth models and "convergence models" differ in their assessment of the extent to which demography influences economic growth. In this paper, I show that computable OLG growth models produce results similar to those of convergence models when more detailed demographic information is used. To do so, I implement a general equilibrium overlapping generations model to explain Taiwan's economic miracle during the period 1965-2005. I find that Taiwan's demographic transition accounts for 22% of per capita output growth, 16.4% of the investment rate, and 18.5% of the savings rate for the period 1965-2005. Decomposing the demographic effect into its components, I find that fertility alone explains the impact of demographic changes in per capita output growth, while both fertility and mortality explain investment and saving rates. Assuming a small open economy, I find that investment rates increase with more rapid population growth, while saving rates follows the dependence hypothesis (Coale and Hoover, 1958). Under a closed-economy, the population growth rate has a negative influence on economic growth.
Keywords: Taiwan, demography, economic growth
The Max Planck Institute for Demographic Research (MPIDR) in Rostock is one of the leading demographic research centers in the world. It's part of the Max Planck Society, the internationally renowned German research society.