The Impact of Ageing and the Speed of Ageing on the Economic Growth of Least Developed, Emerging and Developed Countries, 1990–2013

• DOI: http://doi.org/10.1111/rode.12294
• Date: 01 August 2017
• Published date: 01 August 2017

The Impact of Ageing and the Speed of Ageing on

the Economic Growth of Least Developed,

Emerging and Developed Countries, 1990–2013

Aurora A. C. Teixeira, N. Renuga Nagarajan, and Sandra T. Silva*

Abstract

Studies relating ageing and countries’ economic performance address mostly developed economies.

However, extant studies demonstrate that less developed countries (LDC) and emerging economies (EE)

are reaching the transition process faster than those from developed regions, which renders the speed of

ageing, besides ageing, a critical variable to explore in this context. Comparing system dynamic panel

data estimations for 40 LDC, 19 EE and 28 developed countries (DC), between 1990 and 2013, we

uncovered that ageing is detrimental to countries’ economic growth, with noticeable nuances depending

on countries’ development level. The current level of ageing significantly and negatively impacts on DC’s

growth but not on that of LDC or EE. For these latter groups, the most relevant issue is the speed of

ageing. The current annual growth of old age dependency ratio significantly diminishes EE’s growth

prospects whereas the lagged annual growth of the ageing index and the old age dependency ratio

significantly curtails LDC’s growth. Such results emphasize the need for urgent public policies that might

mitigate the imbalance in LDCs’ age structure before the speed of ageing leads LDCs to become even

much poorer.

1. Introduction

One of the greatest accomplishments of medical science in the 20th century is the

dramatic increase in the life expectancy of individuals (Bloom et al., 2010; Lee

et al., 2011; Mason and Lee, 2011). However, the continuous rise in life expectancy

has led to a growing concern about imbalances in the age structure, most notably,

the increase in the proportion of the old age group (Bell and Rutherford, 2013).

Such concerns reflect the risk that some authors have pointed out (e.g. Bloom

et al., 2010; Lisenkova et al., 2012), that ageing might undermine the economic

growth of countries. Thus, researchers and policy makers are constantly working on

assessing the impact of population ageing on economic growth.

The constant rise in life expectancy and the fall in the fertility rate were at the root

of a demographic transition (Lee et al., 2011; Navaneetham and Dharmalingam,

2012). A proportionately higher older population is expected to impact on the

economic growth of countries since individuals’ needs, preferences and their

physical capability change as they age (Bloom et al., 2010; Lisenkova et al., 2012).

Besides, a slow population growth rate is also expected to increase the burden of

the working group in terms of paying higher income taxes (Navaneetham and

Dharmalingam, 2012). Furthermore, the rise in population ageing diverts

*Teixeira (Corresponding author): Centre for Economics and Finance, University of Porto (CEF.UP),

Faculdade de Economia, Universidade do Porto, Rua Dr Roberto Frias, 4200-464, Porto, Portugal. Tel:

+351-9614-56128; E-mail: ateixeira@fep.up.pt. Also affiliated to the Institute for Systems and Computer

Engineering, Technology and Science (INESC) at the Faculty of Engineering and the Observat

orio de

Economia e Gest~

ao de Fraude (OBEGEF) at the University of Porto. Nagarajan and Silva: CEF.UP,

Faculdade de Economia, Universidade do Porto, Porto, Portugal.

Review of Development Economics, 21(3), 909–934, 2017

DOI:10.1111/rode.12294

©2016 John Wiley & Sons Ltd

government priorities in spending more on the health care system and pensions

than on the country’s development. As a result, countries with a more aged

population tend to face restrictions in economic development (Lindh and

Malmberg, 2009).

Several studies have classified the majority of the developed countries as ageing

countries (Lindh and Malmberg, 2009; Bloom et al., 2010; Lee et al., 2011; G€

obel

and Zwick, 2012; Lisenkova et al., 2012). Moreover, Lindh and Malmberg (2009)

state that the imbalance in the age structure (higher proportion of the old age

group and lower proportion of the working-age group) in European countries will

decrease the GDP per worker and, consequently, affect the overall GDP of the

countries.

Although population ageing was initially visible only in developed countries

(Harper and Leeson, 2009; Lee et al., 2011), recent demographic studies have

uncovered that such a trend is not limited to developed countries alone (Bloom

et al., 2010). There are a good number of studies (e.g. Lee, 2003; Department of

Economic and Social Affairs, Population Division (DESA/PD), 2001, 2007; Bloom

et al., 2010) that have highlighted that the emergent economies (EE) and leas t

developed countries (LDC) are becoming ageing countries at a faster rate than the

developed countries. In fact, the United Nations’ (UN) report showed that the

constant medical aid received to overcome chronic illnesses such as HIV/AIDS

have improved life expectancy in the LDC (United Nations International Children’s

Emergency Fund and Joint United Nations Program on HIV/AIDS (UNICEF and

UNAIDS), 2013) and EE have been observing substantially low fertility rates

(European Central Bank (ECB), 2015). Hence, the rise in life expectancy and the

fall in the fertility rate have begun to introduce EE and LDC to the era of an

ageing population. Since the speed of ageing in EE and LDC is faster than that of

developed countries (DESA/PD, 2010; ECB, 2015) and given its potentially

negative consequences on the countries’ economic growth, we argue that it is

crucial to study the impact of ageing and the speed of ageing on the economic

growth of EE and LDC.

In this paper, resorting to the most recent econometric techniques, the system

dynamic panel data models (Arellano and Bover, 1995), which allow for

unobserved country-specific effects, measurement errors, estimator bias because of

persistency in time series and even endogeneity problems (Bond et al. 2001; Vedia-

Jerez and Chasco, 2016), we assess the impact of ageing and speed of ageing on

economic growth of LDC, EE and high income/developed countries (DC) over a

21-year period (1990–2013). This latter group of countries have received most of

the attention from researchers working on the ageing topic, and thus the

corresponding evidence constitutes a useful benchmark. EE includes low to

intermediate income countries, characterized by strong economic growth but yet

feeble institutions; in terms of demographic fertility has been decreasing

substantially in EE and life expectancy in many of these countries is approaching or

even achieving developed-world figures (Jackson et al., 2011). In this context, EE

stand between LDC and DC, and thus it is valuable to assess the extent to which

their dynamics in terms of ageing and speed of ageing impacts distinctively on

economic growth. To the best of our knowledge, such an evaluation and

comparison between LDC, EE and DC has yet to be performed.

The paper is structured as follows. Following the Introduction, section 2 reviews

the literature related to the determinants of economic growth and puts forward the

main hypotheses for this study. Section 3 presents the model’s specification and the

910 A. A. C. Teixeira, N. R. Nagarajan and S. T. Silva

©2016 John Wiley & Sons Ltd