Economic Consequences of Population Aging in Sri Lanka

Abstract

The population aging is unprecedented in human history that brings numerous socio-economic consequences. In this context, this study was with the aim of understanding the impact of population aging on the economic growth of Sri Lanka and the role of the current pension system in Sri Lanka in determining the impact of population aging on economic growth. The study applies a growth accounting framework to evaluate the impacts of population aging on per capita output growth in Sri Lanka, from 1960 - 2019. The Structural Equation Model (SEM) and the dynamic regression with error ARIMA model were used to meet the study’s objectives. The findings revealed that the aging population has a significant negative impact on Sri Lanka’s economic growth, while total factor productivity growth and capital deepening have a favorable impact. Further, Sri Lanka’s present pension system greatly tempered the direct association between population aging and total factor productivity increase. Overall, Sri Lanka’s current pension system exacerbates the negative effects of population aging on economic growth. The findings of the study can be used to draw several policy implications for the planning of welfare and economic development programs in Sri Lanka.