Savings and the Demographic Dividend: Evidence from a Macrosimulation Model

Joshua K. Wilde, Max Planck Institute for Demographic Research (MPIDR)
Mahesh Karra, Boston University

In the Demographic Dividend literature, a large proportion of the theoretical benefit to reducing fertility rates is typically attributed to increased savings by families with fewer children, which in turn leads to higher investment and increased formation of productive capital. However, the evidence on the magnitude of the effect of reduced fertility on savings rates and on the extent to which those savings are translated into subsequent investment, which directly speaks to the importance of this key theoretical channel, is unclear. In this study, we use a recent macrosimulation model from Karra, Canning, and Wilde (2017) to estimate the overall effect of savings under a range of commonly used savings and investment assumptions. We fi nd that changes in savings only contributes greatly to the Demographic Dividend under few, and likely unrealistic, modeling assumptions, thereby implying that caution is warranted when using increased savings as a central rationale for promoting fertility decline.

Keywords: Demographic dividend and economic development, Economic analysis, National Transfer Accounts (NTA)

See paper.

  Presented in Session 143. Modelling the Demographic Dividend and Policy Implications