CAPITAL- AND LABOR-SAVING TECHNICAL CHANGE IN AN AGING ECONOMY

Does population aging and the associated increase in the old-age dependency ratio affect economic growth? The answer is given in a novel analytical framework that allows for population aging to affect endogenous capital- and labor-saving technical change. In a steady state capital-saving technical progress vanishes, and the economy's growth rate of per-capita variables reflects only labor-saving technical change. The mere possibility of capital-saving technical change is shown to imply that the economy's steady-state growth rate becomes independent of its age structure: Neither a higher life expectancy nor a decline in fertility affects economic growth in the long run.