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The Impact of Demographics on Productivity and Inflation in Japan

Author

Listed:
  • Yihan Liu

    (International Monetary Fund, 700 19th Street, NW, Washington, DC, USA)

  • Niklas Westelius

    (International Monetary Fund, 700 19th Street, NW, Washington, DC, USA)

Abstract

Is Japan’s aging and, more recently, declining population hampering its growth and reflation efforts? Exploiting the demographic and economic variation in the prefectural data between 1990 and 2007, we find that aging of the working age population has had a significant negative impact on the total factor productivity (TFP). Moreover, prefectures that aged at a faster pace experienced lower overall inflation, while prefectures with higher population growth experienced higher inflation. The results give strong support to the notion that demographic headwinds can have a non-trivial impact on the TFP and deflationary pressures.

Suggested Citation

  • Yihan Liu & Niklas Westelius, 2017. "The Impact of Demographics on Productivity and Inflation in Japan," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 1-16, June.
    • Handle: RePEc:wsi:jicepx:v:08:y:2017:i:02:n:s1793993317500089
    DOI: 10.1142/S1793993317500089
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    2. Ian Goldin & Pantelis Koutroumpis & François Lafond & Julian Winkler, 2024. "Why Is Productivity Slowing Down?," Journal of Economic Literature, American Economic Association, vol. 62(1), pages 196-268, March.
    3. Tomoki Isa, 2021. "Demographic Effects on Prices: Is Aging Deflationary?," Discussion papers ron342, Policy Research Institute, Ministry of Finance Japan.
    4. Lee, Hyun-Hoon & Shin, Kwanho, 2019. "Nonlinear effects of population aging on economic growth," Japan and the World Economy, Elsevier, vol. 51(C), pages 1-1.
    5. Cylus, Jonathan & Al Tayara, Lynn, 2021. "Health, an ageing labour force, and the economy: Does health moderate the relationship between population age-structure and economic growth?," Social Science & Medicine, Elsevier, vol. 287(C).
    6. Thomas Mayer & Gunther Schnabl, 2022. "Japan's Low Inflation Conundrum," CESifo Working Paper Series 9821, CESifo.
    7. Iñigo Calvo-Sotomayor & Ekhi Atutxa & Ricardo Aguado, 2020. "Who Is Afraid of Population Aging? Myths, Challenges and an Open Question from the Civil Economy Perspective," IJERPH, MDPI, vol. 17(15), pages 1-17, July.
    8. Iñigo Calvo-Sotomayor & Jon Paul Laka & Ricardo Aguado, 2019. "Workforce Ageing and Labour Productivity in Europe," Sustainability, MDPI, vol. 11(20), pages 1-16, October.
    9. Joseph Junior Aduba & Behrooz Asgari, 2020. "Productivity and technological progress of the Japanese manufacturing industries, 2000–2014: estimation with data envelopment analysis and log-linear learning model," Asia-Pacific Journal of Regional Science, Springer, vol. 4(2), pages 343-387, June.
    10. Cylus, Jonathan & Al Tayara, Lynn, 2021. "Health, an ageing labour force, and the economy: does health moderate the relationship between population age-structure and economic growth?," LSE Research Online Documents on Economics 112421, London School of Economics and Political Science, LSE Library.
    11. Mr. Fei Han, 2019. "Demographics and the Natural Rate of Interest in Japan," IMF Working Papers 2019/031, International Monetary Fund.
    12. Han, Fei, 2024. "The impact of demographic change on the natural rate of interest in Japan," Japan and the World Economy, Elsevier, vol. 69(C).
    13. Xiaoxi Wang & Yaojun Zhang & Danlin Yu & Xiwei Wu & Ding Li, 2022. "Changes in Demographic Factors’ Influence on Regional Productivity Growth: Empirical Evidence from China, 2000–2010," Sustainability, MDPI, vol. 14(7), pages 1-19, April.
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    15. Barbiellini Amidei, Federico & Gomellini, Matteo & Piselli, Paolo, 2019. "The price of demography," MPRA Paper 94435, University Library of Munich, Germany.
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    17. Bodnár, Katalin & Nerlich, Carolin, 2022. "The macroeconomic and fiscal impact of population ageing," Occasional Paper Series 296, European Central Bank.

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