The non-linear effect of population growth and linear effect of age structure on per capita income: A threshold dynamic panel structural model

Abstract

This paper investigates the non-linear effect of population growth and linear effects of age structure on per capita income, using the threshold dynamic structural panel (TDSP) and non-linear generalized method of moments (NGMM) Models. A data set from 81 countries (both developing and developed) covering a 50-year period is used. The results indicate that there is a non-linear relationship between population growth and per capita income. Population growth rate before the zero percent threshold has a significant and positive impact on per capita income, while no significant impact is found after the threshold. Therefore, the optimistic view can be adopted for developed countries where population growth rate is low. In contrast, the neutralistview is applicable in countries where population growth is relatively high. The model’s results also indicate that changes in population age structure affect per capita income—changes which describe a linear relationship. The ‘young dependency’ ratio has a consistently significant and negative effect on per capita income while the participation rate has a significant and positive effect on per capita income. However the ‘old dependency’ ratio has a fragile and contradictory effect on per capita income. Therefore, the view of proponents of age structure is generally acceptable.