Ageing, human capital and demographic dividends with endogenous growth, labour supply and foreign capital

Anne Edle von Gaessler & Thomas Ziesemer

#2017-043

We modify a Lucas-type endogenous growth model to contain endogenous labour supply, imperfect international capital movements, and estimated interest and education time functions. Solutions based on realistic calibrations show that (i) the rate of human capital depreciation through ageing has a much stronger negative impact on growth than further changes in the population growth rate or the Frisch elasticity of labour supply; (ii) a higher rate of human capital depreciation, a higher growth rate of the dependency ratio, and lower past cumulated savings all go together with a higher second-best education time and higher growth; (iii) demographic dividends are positive in the short run but negative in the long run.

JEL Classification: F43, J11, 24; O11, O33, O41

Keywords: Ageing, human capital, endogenous growth, open economy, serendipity theorem