From Population Growth to TFP Growth

Inokuma, Hiroshi; Sanchez, Juan M.

doi:10.20955/wp.2023.006

Working Paper Revision

From Population Growth to TFP Growth

Abstract: Using a firm-dynamics model that has been extended to include endogenous growth, we examine how population growth influences total factor productivity (TFP) growth. The most important theoretical result is that the growth rate of surviving old businesses is a "sufficient statistic" to determine the direction and the magnitude of the impact of population growth on TFP growth. Following that, the model is calibrated for Japan and the United States. The main finding of examining balanced growth paths (BGPs) with various rates of population growth is that the effect on TFP growth is sizable. Japan's expected decline in population growth from 1960 to 2060, for example, implies a 0.36-0.59 percentage point reduction in TFP growth over the long term. Finally, we compute transitions between BGPs and discover that changes in TFP growth are slow in reaction to population growth changes due to two short-run counterbalancing factors.

Keywords: growth; firms dynamics; demographics; productivity; total factor productivity (TFP);

JEL Classification: J11; O33; O41;

https://doi.org/10.20955/wp.2023.006