Modelling Consumption Growth through the Demographic Transition: An Overlapping Generations Model Approach

The John Gokongwei School of Management invites you to a Brown Bag Session on

"Modelling Consumption Growth through the Demographic Transition: An Overlapping Generations Model Approach"

Our presenter is Mr. Eduardo Ezekiel S. Denzon, Instructor of the Department of Quantitative Methods and Information Technology.

This will be held on Wednesday, 29 March 2023 from 12:00 - 1:30PM at the Cabochan Room, SOM 307 and online via Zoom.

Please register here: https://bit.ly/jgsombrownbag29mar2023

Brief Description of the Topic:

Demographic transition brings the opportunity of demographic dividend. The working population increases in population  share. This increases income which in turn increases consumption. There are also changes in the population structure. The dependent population shifts from predominantly  young to predominantly old. It is unclear how consumption  growth is affected by these shifts in population structure. Historical data has shown that the Philippines’ real consumption growth has lagged those of Thailand, Indonesia,  Japan, Singapore, and South Korea until 2012. This paper aims to explain how consumption growth is affected by a shift  from a predominantly young dependent population to a predominantly old dependent population. An Overlapping Generations (OLG) Models approach is used in analysis. Literature on OLG Models that analyze interactions between generations through intergenerational transfers has shown how these intergenerational can improve income, welfare and economic growth; but these are unable to capture the effects of improved economic conditions on demography decisions. Literature on demography applications of OLG Models only model the specific mechanisms that occur during demographic transition. These do not track the changes in the population structure, nor how shifts in the population structure affect income and consumption. This paper will bridge the gap of these fields of study by offering a theoretical framework adapted from Diamond (1965) and Barro (1974). Panel data from World Bank’s DataBank covering the years 1960 to 2019 is utilized for a two-stage panel regression. Results not only confirm mainstream theory on demographic transition, but also offer insights on the economy’s potential trajectory post-demographic transition.