Population Ageing and Economic Growth in the G7, 1995–2020

Abstract

Population ageing is one of the defining demographic and economic challenges of the 21st century, particularly in advanced economies. This dissertation examines the population ageing and economic growth in the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) over the period 1995 – 2020. Ageing is measured along three dimensions: the share of the population aged 65 and above, the old age dependency ratio, and labour force participation among older workers. A balanced panel dataset is used, and the empirical strategy uses fixed effects and random effects estimators, with model choice guided by specification tests. Robustness checks incorporate health expenditure, 2008 financial crisis effects, and Driscoll–Kraay standard errors, while sensitivity tests introduce lagged regressors and the exclusion of Japan as a benchmark case. The results show that ageing does not cause a same negative effect on growth. In baseline specifications, both the elderly share, and dependency ratio tend to reduce growth, consistent with theoretical expectations. However, once savings, health expenditure, and global shocks are controlled for, these effects weaken or turn positive, highlighting the conditional nature of the population ageing growth relationship. Labour force participation among older individuals does not consistently contribute to growth, suggesting that extended working ages solely are insufficient to offset demographic pressures. The implications are threefold. First, savings and capital accumulation play a central role in boosting the economic effects of ageing. Second, global shocks, particularly the 2008 financial crisis, strongly mediate the link between demographics and growth. Third, policy measures focused solely on extending working ages are unlikely to deliver growth benefits without parallel efforts to enhance productivity and create age friendly labour markets. Overall, the dissertation concludes that population ageing in the G7 is not an inevitable drag on growth, but a complex process shaped by savings behaviour, labour market dynamics, and exposure to shocks. With appropriate institutional and policy responses, advanced economies can adapt to demographic change while sustaining economic performance.