Demographic changes, labor effort and economic growth: empirical evidence from Greece

Abstract

Due to a combination of declining fertility rates and increasing life expectancy, most industrialized countries have aging populations and low numbers of young populations that may pose economic problems in the future. This paper investigates the relationship among demographic changes (low fertility rates and high old-age dependency ratio), labor effort and output growth in Greece over the period 1960–1995. The empirical evidence suggests that there is a long-run relationship among the four variables. The estimation results show that in the long run an increase in the old-age dependency ratio and a decrease in the fertility rate will deteriorate the overall economic performance of the economy. Also, employing the vector error-correction models (VECM), the variance decomposition analysis and the impulse response functions, the empirical results support the endogeneity of fertility choice and the proposition that output growth is related to changes in fertility choice. The empirical results have important policy implications, since the adoption of suitable policies accelerate growth performance, facilitating the real convergence process.