The Impact of Population Ageing on Economic Growth

The Impact of Population Ageing on Economic Growth
Mingsheng Li
Introduction
In the previous year's demographic changes have been posing a serious policy problem in the industrialized world. As a result, this has raised more concern among various economists, creating more arguments on population aging and economic output. Demographic factors are crucial as they have a significant impact on various socio-economic aspects. In the United States, there have been economic developments that have resulted in several changes. For instance, due to family planning, fertility rates have moved from high to low. On the other hand, with increased living standards and health conditions, the mortality rates have reduced. As a result, life expectancy has gone up, leading to a higher population of older people. Due to these changes, there is a great need to study population aging on economic growth.
According to the World Health Organization, an aging society refers to that community where more than 7 percent of its population is aged 65 years or more. It also states that for a society to be declared aged, the age group that is above 65 years must be 14 percent or more of the total population. On the other hand, if this age group accounts for more than 20 percent of the whole population, society is hyper-aged. Like most countries across the world, the U.S. is an aging society. Data collected by the U.S. Census Bureau in 2004 indicates that one in every five American citizens will be aged above 65. This will be above the previous data, which indicated that by 2000 only one American out of eight was above the age of 65 years. Furthermore, the data shows that by 2040 the number aged 85 and above will nearly multiply. Based on these data, it is clear that America's aging society will continue to go up, which will not be different from China. This research focuses on China and demonstrates why population regulation policies resulting in slow reproduction and the growth of the aged population are likely to cause slow production and the decline of these economies.
There several reasons as to why I chose to research the topic of the impact of population aging on economic growth. First, in the 21st century, the effect of aging and economic growth is becoming realistic since people are more learned and can quickly notice every change that takes place every day. People realize the rise in government taxes due to the reduced number of people working, as most of the population in many countries is having older people than young ones. Also, they are noticing the increased demand for public services that cater to older adults. Ironically, all these services require a growing economy to support them. Therefore, researching and gathering information on this issue would be necessary as its results would help people make the proper judgment concerning the economic situation, development planning, and rational economic. My interest in this paper is to study the population aging mechanism since it presents and future social and economic issues. This information will play a significant role in enabling other researchers to develop theories that can be used or improved to help solve the problems related to population aging and economic growth.
This research aims to analyze the effect of the aging population on a country’s economy. The paper uses the Harrod Domar Model and Classical growth theory to analyze the effect of aging and birth control regulations in china's economy. Notably, it is divided into six sections. The first portion is a literature review on what other studies have performed and gap identification. The next section, the data section, presents china’s growing population and demographic shifts. It is followed by the model section presenting the tenets of the Harrod Domar Model and the Classical growth theory used in research analysis. The estimation section presents an analysis approach critical to data evaluation. Results and analysis follow this section. Therefore, the paper develops the concept of an aging population and its effects on economic development using China as a case study.
Literature review
Several researchers have come up with various discussions on population aging on economic growth in the past years. For instance, Nagarajan et al. (2017) researched Asia to analyze demographic changes in economic growth between 1960 and 2005. This study indicated that young people showed to be more productive, raising the country's economic growth. On the other hand, the old age people increased their dependency ratio, leading to short-term and long-term adverse economic growth effects. Similarly, Li Jun (2003) argues that population aging also affects the human capital investment that impacts economic growth significantly. Human capital investment main focuses on two parts, which includes health and education. However, educational investments play a significant role in human capital than medical expenses. Therefore, having a large population of older adults than children would mean less human capital. This is because most of the spending will be related to health due to the rising medical costs of treating the elderly. As a result, this would lead to competition between health and educational investment leading to decreased social investment that would lead to low economic growth.
However, a researcher known as Tosun (2009) indicates that change in age structure does not negatively affect economic growth. Instead, he argues that it fosters output growth. To support this, he states that as adults age, they start to increase their saving levels and women start to participate in the labor force due to their declined fertility (Tosun et al., 2009). Based on his study in the United States, he indicates that workers aged 60 to 74 are not less productive than 25 to 59 years. Analyzing these results, he concludes that less productive people are among the younger ages than aged adults. Additionally, the development of chronic illnesses related to old-age, they lead to technological advancement. He also argues that these technological advancements lead to a decline in birth and death rates, leading to economic prosperity.
On the other hand, Ferrero (2005) fails to agree with Tosun on the elderly saving more than the young people. He argues that in a situation that society finds itself with more elders. It faces more economic problems since most of them depend on pension and other elderly benefits. This becomes hard since most of them deal with chronic illnesses that incur higher medical costs (Ferrero, 2005). In return, it makes it difficult for them to save, leading to slower international capital flows leading to low economic growth. He strengthens this argument by highlighting research that was conducted by Kim and Lee in 2007 the effect of demographic changes on the Unites States and other six G-7 countries in the past years, which results showed that increased dependency of the elderly ratio reduces their saving rates (Kim & Lee, 2007). As a result, this worsens their account balances which are used to promote international trade.
The literature review indicates that scholars focus on the consumption effect of an aging population. They also consider aspects like health effects, whereby older people's health needs are costlier and burdensome on the working class. Moreover, they have a high dependency ratio that limits younger people's investment in other areas. Besides, the review also notes that older people save and increase investments which grows the economy. Therefore, adequate research indicates that the aging population can be both a source of investment or a burden to a growing economy. However, the literature materials do not emphasize the consequences of the high aging population burden. For instance, they do not highlight the implication of having a higher aging population that is projected to exceed the country’s investment capacity. Understanding how the aging population affects economic growth in major economies like China is crucial to developing proposals that would help them reconsider their population policies.
Data Section
China’s population demography has changed over the past four decades. The country was predominantly composed of mature people but has not become largely aged (Lu & Liu, 2019). Economic performance improved steadily but has declined as the number of the aged increases. Data released by the National Bureau of Statistics indicates that the number of aged people has grown steadily since 1978. The population changes are portioned into three major phases; accumulative, initial, and acceleration phases. The accumulation phase occurred 1978-1995, during which individuals aged 65 and above reported a 3.19% annual growth rate. The initial phase, 1996-2000, also had a stable growth rate of 2.97% (Lu, & Liu, 2019). the steady growth rates resulted in the aged making up 7% (88.21 million) of the population. China is currently experiencing a rapid growth rate in individuals aged 65 and above that is faster than that of the young population; older people grow at a rate of 3.28%, while the younger population has a growth rate of 0.66%. Notably, the growth rate for older people exceeds that of the younger people and is likely to result in a high economic burden for the younger people. Moreover, the government is likely to spend more on health programs for older people than normally under a balanced population growth rate.
China’s aging population contributes the largest share of the global aged population and has a higher proportion of people aged 80+. The country's older people make up a fifth o...