GDP per Capita and Human Capital Investment in Five Countries after Exhaustion of the First Demographic Dividend

Abstract

As total fertility rates (TFRs) decline globally and life expectancy rises, population aging presents significant economic challenges, including a shrinking working-age population and slower economic growth. This paper examines the impact of aging on economic growth trajectories in China, Hungary, Italy, Sweden, and the Republic of Korea, exploring how differing aging patterns influence economic outcomes. Using a general equilibrium model where agents optimize over an infinite horizon, the study projects GDP per capita and per worker over 60 years. The selected countries, each with TFRs below the replacement level for over three decades, are grouped based on demographic aging indicators. GDP trajectories are shaped by the ratios of the older and young populations to the working-age group and changes in workforce size. Human capital investment is a key component of the model, as each child, while they are young, receives human capital investment every year. This investment determines their future productivity in the workforce and, consequently, the productivity of the overall economy. To our knowledge, no prior research has examined human capital investments across multiple periods in models with infinitely optimizing agents and their cumulative impact on economic productivity. The findings suggest that aging trajectories significantly shape economic growth paths, underscoring the need for tailored strategies to sustain growth in different demographic contexts.