Project

Demographic Trends as Drivers of Structural Transformation

Davide Marco Difino

This project has been retired

Small Research Grant (PhD)

Both the level and the composition of consumption expenditures change over an individual’s life-cycle. The level of expenditures typically display a hump shape, with low levels during early adulthood and retirement and peaking at around age 45. At the same time, there is an age effect shifting the allocation of expenditure between food, manufactures, services, and other sectors. There also exist important secular demographic trends across countries, such as the decline in fertility, population aging, and the shift toward a nuclear family, which are expected to affect the sectoral composition of consumption expenditures and therefore drive structural transformation. This project aims to empirically document how consumption composition depends on demographic characteristics and to evaluate the importance of secular demographic trends as a driver of structural transformation.

The research team makes use of the Luxembourg Income Study Database and the Economic Research Forum. Combined, these include data on consumption spending in 50 countries at varying levels of development. The team first establishes a set of facts describing the relation between demographic variables and the composition of consumption expenditures. These facts are then used as inputs for a structural model, which quantitatively assesses the relative importance of secular demographic trends as a driver of structural transformation compared to the well-known forces, including the relative price effect and the income effect. Additionally, using World Bank data, projections are made as to how consumption will alter over the next few decades, allowing for long-term planning.

Demographic structure changes relatively slowly compared to many economic variables and these changes are usually long anticipated. It is easy to predict, and it has long been forecasted, that much of Sub-Saharan Africa will observe a fast growth of working-age population in the next few decades while parts of East Asia and Europe experience a decline. If indeed we observe a consistent impact of demographic variables on the economic structure of developing countries, then it will possible to make more informed predictions on the magnitude of demand-driven structural change and thus more effectively design policy in this area. While previous studies have focused solely on developed countries and address the impact of population aging alone, this project takes a more comprehensive view and considers other potentially important demographic characteristics, such as family size and structure, while also expanding the analysis to include countries across the entire development spectrum.

Research Team

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