Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/234925
Authors: 
Davis, Colin R.
Hashimoto, Ken-ichi
Tabata, Ken
Year of Publication: 
2020
Series/Report no.: 
ISER Discussion Paper No. 1113
Abstract: 
This paper considers how increasing longevity and declining birth rates affect market entry and endogenous productivity growth in a two-country model of trade. In each country, the demographic transition to an older population induces a contraction in the labor force through a decline in the working-age population. Firm-level investment in process innovation generates productivity growth, and with imperfect knowledge diffusion the country with the larger labor force has a greater share of firms with higher productivity levels. In this framework, population aging reduces a country's labor supply, share of industry, and relative productivity. If the country with the smaller labor force experiences population aging, knowledge spillovers improve and the rate of productivity growth rises, as the level of market entry falls. Alternatively, population aging in the country with the larger labor force weakens knowledge spillovers and lowers the rate of productivity growth, but has an ambiguous affect on market entry. We show that the effects of population aging may be reversed by extending retirement age, and consider the welfare implications for demographic transition and retirement age extension arising in our framework through a quantitative analysis based on population data for the United States and Western Europe.
Subjects: 
Demographic Structure
Population Aging
Knowledge Diffusion
Industry Location
Productivity Growth
JEL: 
F43
J11
O30
O40
Document Type: 
Working Paper

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