Endogenous Growth of Ageing Economy: Evidence and Policy Measures

This paper adopts the two-sector overlapping generation (OLG) model to capture the impact of population ageing on the regional economy and compares the effectiveness of government policy in an endogenous growth perspective. Comparing the computational results of a one-sector OLG model, where agent’s productivity is given exogenously, this paper confirms that endogenously determined investment in human capital significantly offsets the negative effects of the ageing population on the regional economy. This paper also attempts to check if there is room for the government to weaken and prevent the negative effects of the ageing population. For this, this paper examines the effects of two kinds of government transfer systems on the regional economy: money transfer and educational transfer systems. The money transfer, which is redistributed to agents by the government, could be used for an individual’s consumption, saving and educational investment. Educational transfer is given directly to the individual proportional to his or her opportunity cost stemming from education investment. The result shows that the educational transfer system is superior to money transfer system in the long-run in terms of growth of per-capita income, aggregate welfare and stabilizing the factor prices. However, the result implies that there exists a trade-off relationship in implementing an educational transfer system between economic growth and equity of income and wealth.