Endogenous Growth, Population Dynamics, and Economic Structure: Long-Run Macroeconomics When Demography Matters

Even long-run macroeconomic growth models that allow for endogenous growth rely on simplistic assumptions regarding demographic regimes. This paper develops a model with more realistic variation in such regimes, including both excessively high and excessively low levels of average fertility. Variations in the structure of the market economy shape these population dynamics, and these trends in turn affect macroeconomic outcomes. Like early overlapping generations models of the type proposed by Paul A. Samuelson, our approach points to market failures and the importance of social institutions and nonmarket relationships that influence transfers between the old and the young, and the costs of childbearing. It also highlights current demographic imbalances at the country level and points to the need to develop open-economy extensions of this model that can capture the effects of population redistribution through immigration.HIGHLIGHTSDemographic trends affect macroeconomic outcomes, and vice versa.These dynamics challenge the assumption that individual decisions generate sustainable outcomes.In the long run, below-replacement fertility can have serious economic consequences.The macroeconomic model outlined here suggests that costs of caring for dependents should be more equitably shared.