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Endogenous Growth in an Aging Economy: Evidence and Policy Measures

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  • Tae-jeong Kim
  • Geoffrey Hewings
Abstract
This paper presents a two-sector overlapping generation (OLG) model to capture the impact of population aging on a regional economy (Illinois) and compares the effectiveness of government policy in an endogenous growth perspective. Comparing the computational results of a one-sector OLG model, where an agent’s productivity is given exogenously, this paper confirms that endogenously determined investment in human capital significantly offsets the negative effects of the aging population on the regional economy. This paper also explores if there is room for the government to weaken and prevent the negative effects of the aging population. This paper examines the effects of two kinds of government transfer systems on the regional economy: money transfer and educational transfer systems. The money transfer, which is redistributed to agents by the government, could be used for an individual’s consumption, saving and educational investment. Educational transfer is made directly to the individual proportional to his or her opportunity cost stemming from educational investment. The results show that the educational transfer system is superior to the money transfer system in the long run in terms of per-capita income growth, aggregate welfare improvements and factor price stabilization. However, the results imply that the implementation of an educational transfer system accompanies trade-offs between economic growth and a more equal distribution of income and wealth. Copyright Springer-Verlag 2013

Suggested Citation

  • Tae-jeong Kim & Geoffrey Hewings, 2013. "Endogenous Growth in an Aging Economy: Evidence and Policy Measures," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 50(3), pages 705-730, June.
    • Handle: RePEc:spr:anresc:v:50:y:2013:i:3:p:705-730
    DOI: 10.1007/s00168-012-0527-z
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    References listed on IDEAS

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    1. Alexander Ludwig & Thomas Schelkle & Edgar Vogel, 2007. "Demographic Change, Human Capital and Endogenous Growth," MEA discussion paper series 07151, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
    2. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
    3. Geoffrey Hewings & Seryoung Park, 2007. "Aging and the Regional Economy: Simulation Results from the Chicago CGE Model," EcoMod2007 23900037, EcoMod.
    4. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 339-376.
    5. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins of Technology-Skill Complementarity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 693-732.
    6. Seshadri, Ananth & Yuki, Kazuhiro, 2004. "Equity and efficiency effects of redistributive policies," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1415-1447, October.
    7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. K. Newbold, 2015. "Population aging: What role for regional science?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(2), pages 357-372, December.
    2. Kim, Euijune & Hewings, Geoffrey J.D. & Lee, Changkeun, 2016. "Impact of educational investments on economic losses from population ageing using an interregional CGE-population model," Economic Modelling, Elsevier, vol. 54(C), pages 126-138.
    3. Xiuli Liu & Geoffrey J. D. Hewings, 2019. "Identification of changes in the economic interactions among sectors from 1995 to 2010 for Chicago economy using hierarchical feedback loop analysis," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 62(3), pages 637-655, June.
    4. Jaewon Lim & Changkeun Lee & Euijune Kim, 2015. "Contributions of human capital investment policy to regional economic growth: an interregional CGE model approach," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 55(2), pages 269-287, December.

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    More about this item

    Keywords

    I38; J11; R13;
    All these keywords.

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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