| Abstract: | The author considers the potential for a link between the recent pattern of demographic transition and intertemporal and inter-country variations in savings rates. Fertility, infant mortality, life expectancy, and levels of female and child labor force participation are among the various demographic factors which affect national savings rates through their effects upon age structure, age-specific individual savings behavior, and their general equilibrium effects upon interest rates, wage rates, and income distribution. The author establishes a simple discrete time life cycle model of savings, explains the issues related to age structure, and discusses the effect of age-specific savings functions, the general equilibrium effects of demographic factors, the effects of life expectancies and child mortalities, and the nature of social security coverages in less developed countries, as well as issues which are especially important for less developed countries. A new strategy for empirically evaluating demographic policies is proposed. That is, one can estimate the age profile of earnings, saving and fertility rates from household survey data. The life tables can then be used to compute the aggregate savings rate and population size. Any demographic policy which affects the fertility rate, life expectancy, and investment in the quality of children will change the aggregate saving and population growth rates. These two aggregate effects could be compared to evaluate demographic policies. The author stresses, however, that changes in different demographic factors will have different short-run and long-run effects upon the savings rate which will also depend upon whether such changes are transitory or permanent. |
