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Business and Economics > Production and Operations Management

You are looking at 1 - 10 of 13 items for :

  • Type: Journal Issue x
  • Demographic Trends, Macroeconomic Effects, and Forecasts x
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Cover IMF Working Papers
China’s Path to Sustainable and Balanced Growth
Dirk V Muir
,
Natalija Novta
, and
Anne Oeking
After decades of high growth, the Chinese economy is facing headwinds from slowing productivity growth and a declining workforce that are projected to lower potential growth substantially in the longer term. We project China’s potential growth over the medium to long term, showing that potential growth could slow to around 3.8 percent on average between 2025-30 and to around 2.8 percent on average over 2031-40 in the absence of major reforms. We present a reform scenario with structural reforms to lift productivity growth and rebalancing China’s growth towards more consumption, that would help China transition to “high-quality”—balanced, inclusive, and green—growth. We use production function and general equilibrium modelling approaches to show that potential growth could remain at around 4.3 percent between 2025-40 under the reform scenario.
Keywords:
Potential growth; investment-led growth; rebalancing; demographic trends; structural reforms; reform scenario; General equilibrium modeling approach; reforming China's economy; tertiary sector; SOE productivity gap; Total factor productivity; Productivity; Consumption; Global value chains; Global; Southeast Asia
Cover IMF Working Papers
Secular Drivers of the Natural Rate of Interest in the United States: A Quantitative Evaluation
Josef Platzer
and
Marcel Peruffo
We develop a heterogeneous agent, overlapping generations model with nonhomothetic preferences that nests several explanations for the decline in the natural rate of interest (r∗) suggested in the literature: demographic change, a slowdown in productivity growth, a rise in income inequality, and public policy. The model can account for a 2.2 percentage point (pp) decline in r∗ between 1975 and 2015, which is within the range of empirical estimates. Rising income inequality is an important driver (-0.70 pp), and together with demographic change (-0.71 pp) and the slowdown in productivity growth (-1.0 pp) explains most of the decline. Growing public debt is the major counteracting force (+0.31 pp). Permanent income inequality is of greater importance than inequality due to uninsurable income risk, and matching the degree of nonhomotheticity in consumption and savings behavior to empirical estimates is essential for this result. We predict that r∗ will reach a low of 0.38% by 2030, after which a slow reversal will begin. The natural rate will stabilize at 1% in the long run, a low level when compared with the postwar path of r∗ implied by the model. This remains true even if we take into account soaring public debt levels due to the COVID-19 pandemic. Policy can have considerable impact on the level of r∗ through the tax and transfer system.
Keywords:
Demographic Change; Inequality; Life-cycle; Natural Rate of Interest; Nonhomothetic Preferences; Secular Stagnation; transition path; baseline transition-path; labor income; uninsurable income risk; implied path; path of r; Nonhomothetic consumption preference; Income inequality; Income; Productivity; Consumption; Europe; Global
Cover IMF Working Papers
Demographics and the Natural Rate of Interest in Japan
Mr. Fei Han
Japan’s aging and shrinking population could lower the natural rate of interest and, together with low inflation expectations, challenge the Bank of Japan’s efforts to reflate the economy. This paper uses a semi-structural model to estimate the impact of demographics on the natural rate in Japan. We find that demographic change has a significantly negative impact on the natural rate by lowering trend potential growth. We also find that the negative impact has been increasing over time amid stronger demographic headwinds. These findings highlight the importance of boosting potential growth to offset the negative demographic impact and lift the natural rate in Japan.
Keywords:
WP; rate of interest; real interest rate; Demographic change; natural rate of interest; monetary policy; Japan; natural rate; interest rate gap; baseline estimate; core inflation; inflation expectation; Real interest rates; Population growth; Return on investment; Potential output; Global
Cover IMF Working Papers
Long-Run Biological Interest Rate for Pay-As-You-Go Pensions in Advanced and Developing Countries
Mr. Masahiro Nozaki
How much of an internal rate of return would a sustainable pay-as-you-go pension system offer current and future generations equally? The answer is the sum of the Long-Run Biological Interest Rates (LBIR), the real-world equivalent of Samuelson’s (1958) biological interest rate, and future productivity growth. Reflecting global population ageing, the median LBIR across 172 countries is as low as 1 percent per year. The LBIRs are particularly low in advanced countries, estimated to be negative in many of them, and require ample financial reserves today or future productivity growth to maintain participation in pension schemes. On the other hand, the LBIRs in less developed regions, such as in sub-Saharan Africa, are relatively high, indicating a potential to use a pay-as-you-go scheme to expand the coverage of public pensions. Raising the retirement age by five years brings up the LBIR by 40 basis points, significantly improving the long-run budget constraint of a pension scheme.
Keywords:
WP; rate of return; life expectancy; LBIR estimate; Pay-as-you-go pension; internal rate of return; pension reform; contribution rate; LBIR level; RCR decrease; replacement rate; medium-fertility variant; median LBIR; Pensions; Aging; Pension spending; Productivity; Retirement; Sub-Saharan Africa; Middle East; Europe; North Africa; East Africa
Cover IMF Working Papers
The Impact of Demographics on Productivity and Inflation in Japan
Mr. Niklas J Westelius
and
Yihan Liu
Is Japan’s aging and, more recently, declining population hampering growth and reflation efforts? Exploiting demographic and economic variation in prefectural data between 1990 and 2007, we find that aging of the working age population has had a significant negative impact on total factor productivity. Moreover, prefectures that aged at a faster pace experienced lower overall inflation, while prefectures with higher population growth experienced higher inflation. The results give strong support to the notion that demographic headwinds can have a non-trivial impact on total factor productivity and deflationary pressures.
Keywords:
WP; TFP growth; Aging; Population Growth; Inflation; Productivity; depressed total factor productivity; dependency ratio; productivity gap; prefectural total factor productivity; annual total factor productivity growth; UN data; working age population; UN population statistic; Total factor productivity; Labor force participation; Global
Cover IMF Working Papers
Productivity or Employment: Is It a Choice?
Ms. Andrea De Michelis
,
Mr. Marcello M. Estevão
, and
Ms. Beth Anne Wilson
Traditionally, shocks to total factor productivity (TFP) are considered exogenous and the employment response depends on their effect on aggregate demand. We raise the possibility that in response to labor supply shocks firms adjust efficiency, rendering TFP endogenous to firms’ production decisions. We present robust cross-country evidence of a strong negative correlation between growth in TFP and labor inputs over the medium to long run. In addition, when using instruments to capture changes in hours worked that are independent of TFP shocks, we find that cross-country increases in labor input cause reductions in TFP growth. These results have important policy implications, including that low productivity growth in some countries may partly be a side effect of strong labor market performance. By the same token, countries facing a declining workforce, say, because of aging, may see accelerating TFP as firms find better ways of employing workers.
Keywords:
WP; TFP growth; hours growth; hour; total factor productivity; employment performance; technology choices; TFP measure; TFP growth to exogenous movement; labor input growth; growth of TFP; increase immigration; Labor productivity; Productivity; Population growth; Europe
Cover IMF Working Papers
Chronicle of a Decline Foretold: Has China Reached the Lewis Turning Point?
Ms. Mitali Das
and
Mr. Papa M N'Diaye
China is on the eve of a demographic shift that will have profound consequences on its economic and social landscape. Within a few years the working age population will reach a historical peak, and then begin a precipitous decline. This fact, along with anecdotes of rapidly rising migrant wages and episodic labor shortages, has raised questions about whether China is poised to cross the Lewis Turning Point, a point at which it would move from a vast supply of low-cost workers to a labor shortage economy. Crossing this threshold will have far-reaching implications for both China and the rest of the world. This paper empirically assesses when the transition to a labor shortage economy is likely to occur. Our central result is that on current trends, the Lewis Turning Point will emerge between 2020 and 2025. Alternative scenarios—with higher fertility, greater labor participation rates, financial reform or higher productivity—may peripherally delay or accelerate the onset of the turning point, but demographics will be the dominant force driving the depletion of surplus labor.
Keywords:
WP; labor market; Excess labor supply; Lewis Turning Point; Population aging; Demographics; fertility rate; demand condition; TFP contribution; labor market tightness; surplus labor; labor market development; labor shortage economy; excess supply of labor; unemployment results from labor market friction; growth model; growth rate; Labor supply; Labor markets; Labor demand; Wages; Total factor productivity; Global
Cover IMF Working Papers
How Does Political Instability Affect Economic Growth?
Mr. Ari Aisen
and
Mr. Francisco José Veiga
The purpose of this paper is to empirically determine the effects of political instability on economic growth. Using the system-GMM estimator for linear dynamic panel data models on a sample covering up to 169 countries, and 5-year periods from 1960 to 2004, we find that higher degrees of political instability are associated with lower growth rates of GDP per capita. Regarding the channels of transmission, we find that political instability adversely affects growth by lowering the rates of productivity growth and, to a smaller degree, physical and human capital accumulation. Finally, economic freedom and ethnic homogeneity are beneficial to growth, while democracy may have a small negative effect.
Keywords:
WP; real GDP
Cover IMF Working Papers
Hong Kong Special Administrative Region: Macroeconomic Impact of an Aging Population in a Highly Open Economy
Mr. Lamin Y Leigh
Hong Kong SAR's population is aging rapidly. This paper concludes that, without a change in policies, aging could adversely affect growth and living standards. While higher labor productivity growth and increased migration of younger skilled workers from the Chinese mainland, would attenuate the economic impact of aging, they would not offset it fully. Aging will also put pressure on public finances, particularly as a result of rising health care costs. There is a relatively narrow window of opportunity to implement policies to lessen the impact of aging, given that the demographic effects could start setting in as early as 2015 when the working population's support ratio peaks. In recent years, the Hong Kong SAR authorities have been focusing on policies that could help limit the fiscal impact of aging, including continued expenditure restraint on non-age-sensitive areas, reform of health care financing (including introducing private health insurance system), and tax reforms.
Keywords:
WP; productivity; Hong Kong SAR government; SAR.; public finance; income
Cover Challenges of Growth and Globalization in the Middle East and North Africa
Challenges of Growth and Globalization in the Middle East and North Africa
Mr. George T. Abed
and
Mr. Hamid R Davoodi

Abstract

The Middle East and North Africa (MENA) is an economically diverse region. Despite undertaking economic reforms in many countries, and having considerable success in avoiding crises and achieving macroeconomic stability, the region’s economic performance in the past 30 years has been below potential. This paper takes stock of the region’s relatively weak performance, explores the reasons for this out come, and proposes an agenda for urgent reforms.

Keywords:
MISC PUBS; Misc.; country; MENA region; MENA country; oil exporter; privatization receipt; oil-producing country; MENA oil country; MENA countries' experience; a number of country; Public sector; Total factor productivity; Population growth; Labor force; Global; East Asia; Middle East; North Africa; East Africa