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Friday, July 04, 2003

Economic and Financial Market Consequences of Ageing

I'd missed this. It is, of course, extremely interesting for the wealth of detail it provides. (Sunday morning: I've now had time to read this in a bit more depth. In the end it is a paper which promises much, but finally disappoints. In particular they take as their starting point the political impossibility of an immigration driven approach to the problem. They see FDI as an explicit substitute for immigration without examining the various kinds of economic activity involved: ie questions like who is going to care for all the old people. In addition the following don't even seem to get a single mention: deflation, Japan's continuing economic crisis, China.....Even TFP and human capital, which is touched on, is not explored. As a result it is a little difficult to place a great deal of confidence in the, ultimately, rather optimistic findings).

Focus of Paper

The implications of ageing populations over the coming decades at the global level will be significant in terms of not only a slowdown in the growth rate of output and living standards but also with regard to fiscal and financial market trends. Given the backdrop of the downward trend in worldwide potential growth rates over the past number of decades, driven by falling rates of capital accumulation and a slowdown in productivity growth, the additional negative impact of relative declines in the growth rate of working age populations over the coming decades bodes ominously for future worldwide economic developments. The focus of the present paper will be to quantify and analyse the nature, extent and geographical reach of the “real” economy and budgetary aspects of ageing populations as well as providing an initial assessment of the financial market implications of this phenomenon. Particular attention will be devoted to the impact of ageing for labour supply trends; for expenditure pressures on the public finances; for savings, investment and productivity developments; as well as interest rate, exchange rate and current account effects. Finally, an initial assessment will also be provided regarding its effects on globalisation trends in general but more specifically international financial flows and pension fund investments....................

Recent Revisions to the Demographic Outlook for the US :

Compared with the demographic analysis included in Mc Morrow and Roger (1999 >>on my website demography page<< edward), the one big change which has occurred in the intervening period has been the revised population projections for the US. On the basis of the evidence from the 2000 US census, the US is now facing a very different short and long run demographic outlook compared with the EU. While life expectancy developments and projections are still very similar in both areas, fertility rate trends and forecasts differ substantially, due to the recent recovery in US birth rates to 2.0 per woman (compared with 1.5 in the EU) and the expected further improvement to 2.2 over the coming decades (compared with a recovery to 1.7 in the EU). Differences in terms of fertility rates are further reinforced by migration trends, with the central projection of the US Census Bureau suggesting that 45-50 million of the nearly 130 million increase in the total US population over the period 2000-2050 will come from international migration flows, i.e. 35-40% of the total. This compares with a predicted 30 million increase in EU migration over the same period. Finally, in terms of total population numbers, it is interesting to note that the US has moved from having a total population of just half that of the EU in 1950 to an expected population in 2050 which, at 400 million, would be 40 million higher than in the EU. This outcome seems inevitable unless there is a radical shift in the relative fertility and migration trends described above.
Source: EU Commission: Economic and financial market consequences of ageing populations

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