Demographic changes, labor effort and economic growth - Empirical evidencefrom Greece

Due to a combination of declining fertility rates and increasing life expec tancy most industrialized countries have aging populations and low numbers of young populations that may pose economic problems in the future. This pa per investigates the relationship among demographic changes (low fertility rates and high old-age dependency ratio), labor effort and output growth in Greece over the period 1960-1995. The empirical evidence suggests that the re is a long-run relationship among the four variables. The estimation resu lts show that in the long run an increase in the old-age dependency ratio a nd a decrease in the fertility rate will deteriorate the overall economic p erformance of the economy. Also, employing the vector error-correction mode ls (VECM), the variance decomposition analysis and the impulse response fun ctions, the empirical results support the endogeneity of fertility choice a nd the proposition that output growth is related to changes in fertility ch oice. The empirical results have important policy implications, since the a doption of suitable policies accelerate growth performance, facilitating th e real convergence process. (C) 2001 Society for Policy Modeling. Published by Elsevier Science Inc.