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Population Aging and the Direction of Technical Change

Irmen, Andreas

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Abstract

An analytical framework is developed to study the repercussions between endogenous capital- and labor-saving technical change and population aging. Following an intuition often attributed to Hicks (1932), I ask whether and how population aging aff ects the relative scarcity of factors of production, relative factor prices, and the direction of induced technical change. Aging is equivalent to an increase in the old-age dependency ratio of an OLG-economy with two-period lived individuals. In this framework aging increases the relative scarcity of labor with respect to capital. Therefore, there will be more labor- and less capital-saving technical change. Unless there are contemporaneous knowledge spillovers across innovating firms technical change induced by a small increase in the old-age dependency ratio has no first-order effect on current GDP. The presence of capital-saving technical change is shown to imply that the economy's steady-state growth rate is independent of its age structure.

Item Type: Working paper
Date Deposited: 11. Dec 2009 12:19
Date: 2009
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: Demographic Transition , Capital Accumulation , Direction of Technical Change
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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