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Effects of emigration on Croatian growth and pension fund sustainability prospects

Author

Listed:
  • Tomislav Herceg

    (Faculty of Economics and Busines, University of Zagreb)

  • Iva Vuksanovi? Herceg

    (Faculty of Economics, University of Belgrade)

  • Fran Galeti?

    (Faculty of Economics and Busines, University of Zagreb)

Abstract

This paper analyses the current depopulation with respect to its impact on the labour market in Croatia and brings it into relation with the prospective of economic growth and sustainability of Croatian pension funds. Taking this situation as a starting point for further surveys, authors present an analysis of the systemic risk with respect to the population trends and input substitution driven growth. The first part of the survey shows that population trends in Croatia are detrimental: high emigration and low birth rate, resulting in an 7% fall in Croatian population since EU accession in 2013. Two different scenarios are used to make simulations of a population projection, revealing that under current conditions (0,9% birth rate and 0,33% net emigration rate) Croatia would lose 1 Million people (1 quarter) in 3 decades and more retired people than those employed. In the other scenario, under which Croatia would maintain stable population volume, a birth rate of 1,5% would be required, which means that birth count should increase by 67%. Even in that case it would take more than 2 decades to overturn the negative trend and 35 years to match current employed/retired ratio of 1,2.The second part puts the previous simulations into relation with pension fund sustainability. A simulation has shown that under an adaptive (pessimistic) scenario pension fund would require additional 12,8% of the state budget to be able to pay pensions since then there would be 10% more retired than employed people. Even in a sustainable (optimistic) scenario a state budget could expect a fall in the pension fund intervention in 30 years from now.The third part makes some growth accounting analysis. Although majority of the studies take the number of workers as constant since it varies very little in the short run, in Croatia there is a tendency of a rather hasty change in a population and workforce. It brings to conclusion that the changes in labour are not to be ignored and, if the countries want to maintain some minimum growth rates, the decrease in labour will have to be compensated by other factors, such as the increase in stocks of capital through investments and incentives for technology improvement. A simulation has shown that a country which has a fall in workforce of 1% per annum (in Croatia in 2018 it was -1,23%) the investments share in GDP should increase by 8%, making it a very costly and hardly achievable option.

Suggested Citation

  • Tomislav Herceg & Iva Vuksanovi? Herceg & Fran Galeti?, 2019. "Effects of emigration on Croatian growth and pension fund sustainability prospects," Proceedings of International Academic Conferences 9412319, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:9412319
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    References listed on IDEAS

    as
    1. Peter J. Stauvermann & Ronald R. Kumar, 2016. "Sustainability of A Pay-as-you-Go Pension System in A Small Open Economy with Ageing, Human Capital and Endogenous Fertility," Metroeconomica, Wiley Blackwell, vol. 67(1), pages 2-20, February.
    2. Wang, Ping & Yip, Chong K & Scotese, Carol A, 1994. "Fertility Choice and Economic Growth: Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 255-266, May.
    3. Sheetal K. Chand & Mr. Albert Jaeger, 1996. "Aging Populations and Public Pension Schemes," IMF Occasional Papers 1996/013, International Monetary Fund.
    4. Luciano Fanti & Luca Gori, 2012. "Fertility and PAYG pensions in the overlapping generations model," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(3), pages 955-961, July.
    5. John Bongaarts, 2004. "Population Aging and the Rising Cost of Public Pensions," Population and Development Review, The Population Council, Inc., vol. 30(1), pages 1-23, March.
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    More about this item

    Keywords

    Total Fertility Rate; Emigration; Growth Accounting; Generation Solidarity Pension System; Overlapping Generation Model;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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