Economic Analysis Series No.196

December, 2017
Special Editor Shin-ichi FUKUDA
Macroeconomic Effects of Population Decline on Economic Growth
Special Editor Shin-ichi FUKUDA
An Empirical Analysis of the Saving Behavior of Elderly Households in Japan
Charles Yuji HORIOKA
Human Capital Accumulation through Recurrent Education
The Effect of Demographic Change in Business Cycle Indicators
Yasuyuki KOMAKI
Population Aging and Domestic Investment-An Analysis Using International Panel Data-
Masanori UMEDA
Masahiro HORI
Does the Aging of a Firms' Workforce Affect Its Investment Behavior?-An Analysis Using Financial Panel Data of Japanese Firms-
Masanori UMEDA
Masahiro HORI
Population Aging and Its Impact on Economic Growth-Implications for Korea-
Hyun-Hoon LEE
Kwanho SHIN
Donghyun PARK
Migration, Human Capital, Brain Drain and Gain-A Perspective in Light of the EU's Experience-
Robert F. OWEN
The Effects of Housing Price on the Banking Sector Performance-Evidence from MSA data in the US-
Sung Wook JOH
Seongjun JEONG


An Empirical Analysis of the Saving Behavior of Elderly Households in Japan

Charles Yuji HORIOKA, Yoko NIIMI

In this paper, we analyze the saving behavior of elderly households in Japan in order to shed light on the impact of population aging on the household saving rate. The data sources we use for this analysis are the"Family Income and Expenditure Survey," conducted by the Statistics Bureau of the Ministry of Internal Affairs and Communications, and the"Survey on Households and Saving," conducted by the Yu-cho Foundation. Our main findings are as follows:(1)In Japan, the saving rate of the working elderly is positive but lower than that of younger households. By contrast, the saving rate of the retired elderly is negative and high in absolute magnitude;(2)the wealth decumulation rate of the retired elderly has shown a moderate increase over time, and this is due primarily to reductions in social security benefits; and(3)the retired elderly are decumulating their wealth but not as rapidly as predicted by the simple life cycle model, due primarily to the presence of precautionary saving and bequest motives.

JEL Classification Codes: D14, D15, E21
Keywords: Elderly, Saving, Life Cycle Model

Human Capital Accumulation through Recurrent Education


One of the biggest challenges in Japan is to promote economic growth in a rapidly aging society. Given declining labor forces in an aging society, it is indispensable to improve the quality of labor forces through human capital accumulation. This is particularly true when human capital in the young depreciates overtime, which may result in insufficient human capital for economic growth. Hence, we need recurrent education for the elderly or retired female workers. This paper studies whether a rapidly aging society can achieve sufficient human capital accumulation when the choice to take recurrent education is left to the private sector.

For this purpose, this paper examines an OLG model in which human capital is accumulated through recurrent education as well as tertiary education. We show that the impacts of mortality rate on recurrent education depend on the relation between tertiary education and recurrent education. Specifically, if tertiary education and recurrent education are complementary, which means that recurrent education is more effective for a higher level of tertiary education, a decline in mortality rate promotes recurrent education and accumulates human capital. In contrast, if they are substitutes, which means that recurrent education is less effective for a higher level of tertiary education, a decline in mortality rate suppresses recurrent education and decreases human capital. In the latter case, we need some policies to promote recurrent education, since the level of recurrent education may not be sufficient to achieve sustainable economic growth without policy supports.

JEL Classification Codes: J10, I25, O15
Keywords: aging society, human capital accumulation, recurrent education

The Effect of Demographic Change in Business Cycle Indicators

Yasuyuki KOMAKI

We estimate the effect of demographic change for Business cycle indicators. Japan is an advanced country in population decline and aging in the world, but it is difficult to find the influence of demographic change in national-base indicators clearly.

If we investigate the effects using prefecture -base data, we find several divergence. Population decline has already continued for nearly 20 years in Akita and Kochi, on the other hand, population is maintained in the area including the metropolis by an inflow of the young population.

According to the population prediction by Regional Population Projections for Japan: 2010–2040 (2013), it is anticipated that the tendency of such a bipolarization between an advanced areas in population decline and the area including the metropolis becomes clearer.

Using gross prefectural product and two estimated business indicators across prefecture area in Japan, we examine the population decline and age distribution's effect on business cycle fluctuations like trend, cycle and volatility. We show that population decline and aging have a negative influence on economic activities. But we don't find same influence in the whole area in Japan. It is easy to occur the positive effect in the area including the metropolis. As the result, the regional disparities will be on an expanding trend for the future. This result indicate that an appropriate judgment is difficult using the all area and all industry indicator like GDP.

Statistics for regional economic structure has been developed to a certain extent, but there are very few reliable economic statistics for the current economic trends. In order to grasp the effects of population declining and aging, it is necessary to develop current economic statistics for the region.

JEL Classification Codes: E0, E3, J10
Keywords: Business cycle, population decrease, age composition

Population Aging and Domestic Investment -An Analysis Using International Panel Data-

Masanori UMEDA, Takuma KAWAMOTO, Tetsuro SAKAMAKI, and Masahiro HORI

It has been pointed out that the recovery of domestic investment in Japan has been slow compared to the relatively strong corporate earnings. Similarly sluggish growth in capital investment has been observed in other advanced countries in the process of recovery from the global financial crisis. While the change in the link between macroeconomic developments and investment likely reflects a number of factors, the aging of the population, which are most pronounced in Japan, likely play an important role. To investigate the effects of aging on domestic investment in a country, we run regressions using an international panel dataset covering about 160 countries around the world. As channels through which aging affects domestic investment, we consider two possible channels:(1)a decline in the savings rate, and(2)a decline in the expected growth rate. We find that aging leads to lower domestic investment through both channels. Our result appears to suggest that one of the reasons for the sluggish investment observed in a considerable number of countries including Japan is the rapid population aging in countries worldwide.

JEL Classification Codes: E21, E22, J11
Keywords: Population aging, Domestic investment, Saving rate, Expected growth, International panel data

Does the Aging of a Firms' Workforce Affect Its Investment Behavior? -An Analysis Using Financial Panel Data of Japanese Firms-

Masanori UMEDA, Takuma KAWAMOTO, Tetsuro SAKAMAKI, and Masahiro HORI

While Japan's corporate sector is performing relatively well, the level of domestic investment nevertheless appears to be sluggish. Potential explanations include intense global competition and/or the shift to a service economy; however, it is important not to ignore the possible effects of population aging, which is progressing much faster in Japan than in the rest of the world. In order to examine the effects of population aging on investment, we conduct an empirical analysis using firm-level financial data of listed firms and some unlisted firms. Specifically, we estimate investment functions that include variables reflecting the age structure of workers in a firm.

When considering the effects of population aging on firms' behavior, one can do so from two perspectives:(1)the aging of society as a whole, and(2) the aging of firms' own workforces. In this article, we focus on the latter, i.e., the effects of the aging of firms' managers and employees on their investment behavior. Intuitively, one might expect the aging of a firm's management and workforce to be associated with negative effects such as a decline in corporate vitality and conservative decision-making, but there could also be positive effects through the increase in experience and skills. Our results show that older CEOs do not necessarily reduce investment to the extent one might expect. A likely explanation is that firms with an older CEO are more stable, which tends to promote investment. However, especially in the case of listed firms, a nonlinear negative association between the age of the CEO and investment is observed once the CEO is older than 70 years of age. On the other hand, regarding the aging of employees, we find that, at listed firms, this tends to be associated with lower investment, likely because it pushes up labor costs and reduces profitability.

JEL Classification Codes: E22, G31, J11
Keywords: Population aging, Fixed investment, Financial panel data, Tobin's q

Population Aging and Its Impact on Economic Growth -Implications for Korea-

Hyun-Hoon LEE, Kwanho SHIN and Donghyun PARK

In this paper, we systematically assess the impact of population aging on economic growth using Penn World Table 9.0's newly available national-accounts growth rates, which is recommended by PWT for comparisons of growth rates across countries. Our empirical specification is an extended partial adjustment model which allows us to estimate the effects of demographic change in both the short run and long run. We use both five and ten year intervals for the period from 1960 to 2014. We find that population aging hampers economic growth in both short run and long run. We also find that elderly participation in the labor force has a positive influence on economic growth, which suggests that the harmful effect of aging can be mitigated by more active participation of the elderly in the labor force. Interestingly, we also find that the future level of population aging, not just the past level, has a detrimental effect on economic growth. Future aging may raise concerns about future growth prospects and thus adversely affect current economic activity.

In addition, we project how aging will affect Korea's future growth prospects. The projected growth rates decline continuously to -2.7% twenty years from the last year of the sample(in 2034), which is even lower than -1.6%, Japan's fitted growth rate for the most recent year. One possible explanation for why aging has a bigger impact on Korea than Japan is that aging is progressing even more rapidly in Korea than it did in Japan. Korea's economic future may thus be even gloomier than Japan's present because its demographic prospects are even worse.

Lastly, we offer a number of policy options for Korea to mitigate the pronounced impact of population aging on economic growth. The Korean government has already actively taken a wide range of policy measures to address the aging challenge. Those measures are centered on efforts to boost fertility, but also include support for the elderly. Unfortunately, those measures have not been effective so far, as evidenced by the continued rapid progress of population aging. Going forward, one especially promising area of government intervention, in light of our empirical findings, is raising the participation of women in the workforce through a holistic package of policies that will enable women to better balance work and family.

JEL Classification Codes: J10, O10, O40
Keywords: Population aging, demographic transition, economic growth, Korea

Migration, Human Capital, Brain Drain and Gain -A Perspective in Light of the EU's Experience-

Robert F. OWEN

The interdependence between migration, human capital formation and countries' economic welfare via, notably, brain drain and gain effects, is examined, while highlighting certain key features from the experience of the European Union. First, a broad empirical overview of trends in international migration since 1980 is offered for EU countries, in comparison with patterns in certain other major developed countries, including Japan and the United States. In addition to the hypothetical structural changes arising from enhanced intra-EU labor mobility under the Schengen Agreement, another distinctive feature of the European experience has been a marked build-up in the importance of Erasmus student mobility. Associated trends and imbalances across countries are identified. A more summary presentation of empirical findings and methodological insights, based on an empirical investigation relating to the inter-regional labor mobility of recently graduated French workers, is also provided. This micro-econometric analysis uses Probit models, corrected for selection bias, when examining both micro and macro-economic determinants of the mobility of recent graduates across French regions. Findings suggest that educational attainment influences job offers directly, as well as, indirectly, through heightened geographical mobility. In this regard, a strong, but non-linear, link between education and spatial mobility is identified. A welfare analysis emphasizes how human capital"quality" can impact the evaluation of migration effects, while proposing an approach for calculating imputed welfare effects of interregional mobility.

A subsequent conceptual framework is proposed for understanding how heterogeneous abilities and initial national levels of educational attainment, along with differences in the quality of higher educational systems and associated access conditions, critically co-determine individuals' international educational choices and their related, subsequent professional options.

Associated implications for national economic welfare are outlined. An array of factors in shown to potentially determine students' decisions whether to be trained and/or work at home,or abroad. These include the quality and pricing of educational offerings, the openness, specificity and selectivity of university systems, international salary differentials and foreign job market access conditions. Self-selection on the part of heterogeneous individuals is a key element determining the balance between brain drain and brain gain effects, along with the relative efficacy of countries' optimal educational policies, aimed at attracting international talent.

JEL Classification Codes: F22, D82, I25, I28, J24
Keywords: human capital, brain gain, brain drain, international migration, labor markets, European Union, international educational choices and policies, heterogeneous agents, self-selection

The Effects of Housing Price on the Banking Sector Performance -Evidence from MSA data in the US-

Sung Wook JOH and Seongjun JEONG**

This paper examines the factors affecting bank activities before and after the crisis in 2007. Using banking sector information in metropolitan statistical areas (MSAs) in the US from 2001 to 2014, we find that credit supply and performance of banking sectors depend on MSA level-economic conditions, controlling for other factors. Before the crisis, banks in MSAs with higher real estate market prices show more lending and better accounting performance. After the crisis however, total bank loans do not depend on real-estate prices while MSAs with higher real-estate price indices provide more bank loans to households but fewer loans to commercial and industrial borrowers. MSAs with more household loans show higher non-performing loan ratios (NPLs). In contrast, MSAs with more commercial and industrial loans show lower NPLs. Consequently, the banking sectors in MSAs with lower real-estate price indices have higher rates of return on assets (ROA). These results suggest that the recovery of real-estate markets does not necessarily lead to better performance by the surviving banks.

JEL Classification Codes: G01, G20, G21
Keywords: Credit supply, Bank Performance, Real estate market, Non-Performing Loan

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