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Demography, growth and inequality: Age invaders

Stashed in: economics, The World, Aging, Aging, Economy

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Demography may not be destiny, but it's hard to argue that the advanced economies are greying quickly...

It has implications not just for us but for the whole world:

Unfortunately, more capital currently flows out of emerging economies into the rich world than the other way. The most successful emerging economies have built up huge stashes of foreign currency; many are leery of depending too much on foreign borrowing. Even if that were to change, the youthful economies of south Asia and Africa are too small to absorb huge flows of capital from those countries that are ageing fast.

And in the rich world, despite lots of obvious innovation, particularly in computer technology, both productivity growth and investment have been tepid of late. That may be a hangover from the financial crisis. But it could also be a structural change. The price of capital goods, notably anything to do with computers, has fallen sharply; it may be that today’s innovation is simply less investment-intensive than it was in the manufacturing age. And the ageing population itself may deter investment. Fewer workers, other things being equal, means the economy needs a smaller capital stock, even if some of those workers are clever old sticks. And an ageing population spends differently. Old people buy fewer things that require heavy investment—notably houses—and more services, whether in health care or tourism.

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