Does Population Ageing Reduce FDI Inflows in OECD Countries? Evidence from Bayesian Panel VAR Estimates

Abstract

AbstractEconomic theory posits a negative relationship between population ageing and net FDI inflows. Declining population in OECD countries in recent times has attracted the attention of academicians and policy makers. Will a declining population significantly reduce FDI inflows in OCED countries? This paper investigates the effects of population ageing on net FDI inflows (as a percentage of GDP) for 22 OECD countries over the period 1980–2017. The panel variables are found to be stationary. Estimates from the Bayesian panel VAR model indicate the lack of any significant relationship between population ageing and net FDI inflows. Furthermore, population ageing is found to have just a transitory effect on net FDI inflows. The results are robust across two different measures of population ageing and four different model specifications. We conclude that, in contrast to the predictions of economic theory, an increase in population ageing does not significantly affect net FDI inflows in the 22 OECD countries under study.KeywordsDemographyFDIUnit rootVAR