Demographic structure, knowledge diffusion, and endogenous productivity growth

This paper considers how increasing longevity and declining birth rates affect market entry endogenous productivity growth in a two-country model of industry location trade. Firm-level investment process innovation generates growth, with imperfect knowledge diffusion the larger country, measured by labor force size, has greater share relatively productive firms. In this framework, population aging reduces country’s supply, industry, relative productivity. If smaller country experiences aging, spillovers improve rate rises, as level falls. Alternatively, weakens lowers but an ambiguous on entry. A quantitative analysis framework based data for United States Western Europe is used to consider welfare implications demographic transition.