Age Dependency Ratios and GDP Growth in Developing Countries

Abstract

What is the relationship, if any, between age dependency ratios (ADRs) and macroeconomic growth in low-income countries versus emerging economies? This paper probes the hypotheses that (1) ADRs and GDP growth are inversely correlated at both stages of development and (2) an equivalent rise in ADR is associated with a greater change in GDP growth in low-income countries than in emerging economies. The approach to testing the corresponding null hypotheses is to conduct linear fixed-effects regression analyses with AR(1) disturbances using annual World Bank and United Nations data on 38 low-income countries and 63 emerging economies over the 24-year period from 1994 to 2017. Model 1 is a simple bivariate regression of GDP growth against ADR by group; Model 2 adds population growth, unemployment, human capital (represented by Human Development Index scores), and technology (reflected in gross fixed capital formation) as control variables. The ADR coefficients have greater statistical significance in low-income countries than in emerging economies, but the differences themselves are more likely to be statistically significant in Model 2 than in Model 1, and tests of the null hypotheses produce mixed results. The paper closes with a comment on the implications for fiscal policy in low-income countries.