Wednesday, August 02, 2006

Growth Theory

Neo-Classical Growth?

Is there, or isn't there an ageing impact on our economies? Well one way of addressing this issue is to look at the recent economic performance of some of those who are most directly affected. Now one of the key postulates of neo-classical growth theory is that each economy has its own long run steady state growth rate. This is in many ways a highly questionable assumption and is one which, with the notable exception of the US, is very hard to sustain empirically over the longer term. Economic performance tends to fluctuate, the big question is: does it fluctuate following any kind of identifiable pattern?
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Demographics and an Overheated India?

There has certainly been much debate and discussion lately about what has been known as India's sizzling growth rates whether this rampant pace of the Indian economy is sustainable or whether in fact the economy was on its way to overheat and perhaps even collaps. More interestingly, this discussion has pitted our very Edward and his Indian colleagues over at the Indian Economy Blog against no other than the hegemoneous English magazine the Economist. As such, if you have been following the readings in the Economist as of late the journal has on several occasions pointed to the worrying signs of India's economic growth. A week ago the Economics Focus column featured two studies which compared economic growth in India and China; both of them by Barry Bosworth and Susan M. Collins from the Brookings Institution; 1) Accounting for Growth: Comparing India and China and 2) Sources of Growth in the Indian Economy. And the conclusion as quoted from the Economist Economics Focus column.
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US Fertilty and Growth, A Research Agenda

Possibly some could accuse me - and probably with good reason - of being obsessed with the US fertility issue (see this post which was a first pass at the issue, and this one by Claus). I think what is happening on the fertility front in the US is important for all of us since the US fertility situation is more or less unique in the OECD world, and possibly will become even more unique as an increasing number of developing countries attain below replacement (and possibly even lowest-low) ferility. The examples of the Asian tigers, China, Thailand, the Southernmost (and economically most succesful) Indian States (Kerala, Tamil Nadu) should give us serious food for thought on this count.
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Economic Growth In The OCED

Claus is right to draw our attention to the OECD factbook. There is a lot of useful data to be found there. I have just found this useful graph of economic growth in the OECD since the start of the ninetees:

A number of non OECD countries have been added by the OECD - China, India, Brazil - and this makes the picture even clearer. Almost all the elderly societies - Japan, Germany, Italy, Switzerland - have been experiencing low growth, and over a comparatively long period of time. At the other end, those countries getting a boost from their demographic dividend have been having comparatively high growth (Ireland included). Including the first half of the ninetees may even blurr the contrast a little, since the situation has been most pronounced over the last decade. (Full stats on annual growth rates over this time can be found in this pdf). The situation is further complicated by the evolution of the East and Central European EU accession states, which although ageing comparatively rapidly, have been having a 'catching-up' growth boost due to their coupling with the rest of the EU. Their growth evolution will be an important area of interest in the next few years.
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The Malthusian Trap and Growth Theory

In almost all posts here on DM we highlight in some way or another the potential negative effects of a declining population in either regions or whole countries. Particularly, we have argued in the context of Italy and notably Japan that declining and ageing population are likely to have an impact ... but an impact on what? Well quite frankly let us just call it 'growth' in its widest economic sense. Now, (and very briefly) in economics we have two broad measures of looking at the growth of the economy; short term and long term. The short term definition of growth in economic output centers around business cycle analysis where actual output grows either above or beyond a trend path. In terms of growth in the long run we are interested in the rate and change of real income of real output which centers around the idea of the steady state which in fact is the long-run equilibrium in growth theory.
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The Economics of Demographics



This one is a real treat for anyone simultaneoulsy interested in demographics and economics and as such also a treat for the DM team and hopefully for our faithful readers as well. What am I talking about then? In short, the IMF has chosen to devote their Septemper issue of Finance and Development to 'The Economics of Demographics' and obviously this cannot go un-noticed here. On that note we should thank fellow blogger Pienso for brining the IMF publication to our attention via E-Mail. So what do we have here?
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Immigration, Demographics, and Economics

Over the past few years, I have studied demographics and the economics of globalization and practiced to what extent I could through my jobs. What interests me most about the current state of demographic change throughout the world – is the fact that because of globalization, for the first time international migration has become a significant variable in how these changes translate into economic growth. To put it another way, the graying of parts of the world and population explosions in others can both be mitigated by net positive or net negative international migration, respectively.
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A Demographic Divide?


In the post below Edward discusses the demographics of Nigeria and more specifically how economic growth also is effected by high fertility parallel with the situation of economic growth and low fertility which is perhaps more widely cited here at Demography.Matters. As Edward notes in relation to Nigeria and more generally in the context of many sub-Saharan Africa high fertility is at the heart of the growth issue. The point here is in fact the savings rate and crucially what we could call a Malthusian trap where all the income is used for consumption and thus there is no room savings/investment dynamics (capital accumulation). Robert E. Lucas also explains this process in terms of the growth feedback with Malthusian population dynamics.
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Nigeria Population Census Results


Well I don't have a lot to say about the details of the findings at this point (since among other things Thomas may want to say something), but as he suggested in this post, the Nigerian census results are now complete and published:

Nigeria's population is growing at an annual rate of 3.2 percent and stands at just over 140 million, a 63 percent increase in 15 years, population commission chairman Samu'ila Mukama has said.

"The total number of the Nigerian population is 140,003,542," Mukama announced in presenting the provisional results of the March 2006 census to President Olusegun Obasanjo in the federal capital Abuja on Friday.

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Message To Central Bankers: Target Median Ages!

Central bankers are all in a flurry right now, since they don't seem to be any too sure what it is they should be targeting, inflation or monetary aggregates. Well I have one piece of advice for them: keep your eyes on both of these (provided that is you know how to interpret the signals) but add one more objective (or pillar) to your list - population median age.

Sounds daft, doesn't it? What a silly idea Edward!Well no actually, it isn't. And the fact that most people in the macroeconomic community haven't appreciated the role and importance of this metric is one of the principal reasons why many observers are at such a loss to understand what is happening in Germany and Japan right now, and why the proponents of the so-called 'Goldilocks' recovery are discovering that there just isn't enough honey in the pot to go round (obviously some of it was eaten by one of those bears I mentioned in the last post). For a brief introduction to the macroeconomics of this problem, see this post from Claus (and then drill as far down as you want, one thing is for sure, you won't reach Australia, since Australia isn't on the list of countries with a preoccupyingly high median age, at least not just yet it isn't, which is why over at the Australian central bank they may like to take note of what I am saying while there is still time).
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Immigration, Ageing Populations and Economic Growth


Marty Feldstein has an article in the Financial Times today under the header "Immigration is no way to fund an ageing population". This is a strange coincidence since earlier this week I was busy posting on Italian Economy Watch about the boost given to economic growth in Italy in recent years by the growing numbers of immigrants who have been arriving there.

Now since I am arguing that immigration is in fact a significant policy tool which can be leveraged to address the problems raised by population ageing, a clear clash of opinions would seem to exist. So who is right here?
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