Effect of Demographic Change on Economic Growth: Role of Capital Movements (in Korean)

Most of previous studies exploring the effect of demographic change on economic growth are based upon closed economic models where the movements of labor and capital are strictly restricted. When we consider the movements of capital across borders, however, the effect of population ageing could be different from that in the closed economic models. Against this background, this paper conducts empirical analyses on the effect of demographic change on economic growth with allowing capital movements using cross-country panel data from 1965 to 2010 involving 108 countries. First of all, the highly correlated relationship between savings rate and investment rate, so-called Feldstein and Horioka (1980) proposition, has been weakened as time goes by, which implies significant international capital movements in recent decades. Also, as population ageing deepens, both savings rate and investment rate could drop, which implies that the effect of population ageing on growth in a closed economy could be somewhat exaggerated if the necessary investment resources can inflow in an open economy. Further more, the rigorous empirical analyses using cross-country panel data indicate that the capital inflow for necessary investment cancels out the magnitudes of decrease (100%) in economic growth by 9.5~21.9% when non-working age population ratio increases. In addition, this cancellation effects are more significant when the types of capital inflow are FDI or debt rather than portfolio equity and when youth population (under 15 years olds) has more share in non-working age population.