The Effects of Aging on Economic Growth

Problem Statement:

In America, the demographic structured has been changing steadily thanks to the advancement in medicinal research, and technology. Many of the war veterans, the baby boomers and older members of the societies are increasingly aging. This means that America as developed country is increasingly having a large number of aging citizens who are mainly consumers but are not productive. Aging has both positive and negative impact on economic growth, but the main mechanism underlying the impact of aging on economic growth is not clearly articulated. This research aims to determine if aging has an impact on economic growth and how it affects economy.

Research hypothesis

H0: aging affects economic growth through consumption and saving patterns, public expenditure, and human capital

H1: aging does not affects economic growth through consumption and saving patterns, public expenditure, and human capital

Literature Review:

According to Gorman, (2010), baby boomers include all those citizens born between 1946-1964. These are the aging citizens of American who are have lost value in investments because of the economic crisis, and are also nearing retirement or are already retired. While these people have many medical care and nutrition need that are also costly, they are not productive and do not contribute to the household income and the country economy. The aging population also affects public expenditure in terms of budgetary allocation. This also means that the foreign investment in a country with a larger proportion of the aging population will also decline because of lack of labor force, and consumers (Mortensen 2005).

However, this demographic evolution has both economic and policy implication because it call for far reaching policy formulation in all sectors. One of the most important factors that must be considered is the positive impact of aging on the economy of developing and developed countries because it presents a window of opportunity from the unemployed.\

Finding and discussion

According to Martin, (Feldstein, 2006), aging population presents a major challenge to economic development in terms of delayed retirement, increased dependency rations, budgetary constraints, capital intensity, and quality of labor, total factors productivity and innovations, as well as consumptions. The effect of the aging population out rightly outweighs the benefits because of the inequality considering the cost effect analysis. If the aging population is higher than the younger generation, the overall productivity of the country will decline and the country economic will be very poor. The dependency rate increases and this affects the country economy. The implication of such demographic structure is that there should be immediate policy changes.

References

Martin S. Feldstein. 2006. “The Effects of the Ageing European Population on Economic Growth and Budgets: Implications for Immigration and Other Policies.” NBER Working Paper No. 12736

Linda Gorman. 2010. “Implications of Population Aging for Economic Growth.” NBER Working Paper No. 20004

Mortensen J. 2005, “Comments on productivity and other macroeconomic assumptions”,

Presentation to the Ageing Working Group of the European Policy Committee of the

European Union, Brussels, Paper no. 291783

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