Demographic Change and its Impact on Economic Growth

Abstract

Most advanced economies are facing demographic change, but all eyes are on Japan as the country holds the vanguard role in this issue with its very low birth rate and the highest life expectancy in the world. This paper aims at giving an insight into the possible impacts of demographic change on Japan’s economy. At the same time, it investigates the influence of possible policies that can be implemented to address the issue. A special focus is on the attempt to increase the female labour participation rate as this approach is already part of Japan’s economic strategy under the broad heading of ‘Abenomics’. These policies are ultimately aimed at invigorating economic growth in Japan. To show the impact of demographic change and an increase of the female labour participation rate, a simple Solow-Swan-model is used and adjusted accordingly. The paper is structured as follows. First, it will give an insight into the theoretical implications of demographic change, in a first section. This will be followed by an analysis of the gender issue as having an important role in this change. In a third section, the paper will look at the possible benefits arising from increasing the female labour participation rate and it will finish with some concluding remarks.