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Demographic Trends, EU Enlargement and Economic Growth

Demographic Trends, EU Enlargement and Economic Growth. Zamira Simkins* Walter Park * University of Wisconsin-Superior zsimkins@uwsuper.edu. What is the EU?. Candidates : Croatia, Turkey, Macedonia Potential candidates : Albania, Iceland, Montenegro, Bosnia and Herzegovina, Serbia, Kosovo.

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Demographic Trends, EU Enlargement and Economic Growth

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  1. Demographic Trends, EU Enlargementand Economic Growth Zamira Simkins* Walter Park * University of Wisconsin-Superior zsimkins@uwsuper.edu

  2. What is the EU? Candidates: Croatia, Turkey, Macedonia Potential candidates: Albania, Iceland, Montenegro, Bosnia and Herzegovina, Serbia, Kosovo

  3. Why is EU Enlarging? Official explanation: • “Enlargement is helping the EU cope better with the new world economic order” (Joaquin Almunia). • “The EU has achieved far more through its gravitational pull than it could have ever done with a stick or a sward…we risk if we suddenly stop our accession process” (Olli Rehn). Research proposal: Demographic crisis Population ageing + Low birth rates => Declining active labor force + High unemployment + Increasing life expectancy => Potential economic and welfare system crises • Boeri et al (2001): By 2050, key EU-15 countries will have worker-retiree ratio of less than 1 worker per 1 retiree.

  4. Why is EU Enlarging? EU-15 Population pyramid, 2011 EU-25 Population pyramid, 2011 EU-10 Population pyramid, 2011 US Population pyramid, 2011 Age % of population Age % of population

  5. Theoretical Model and Hypothesis (Jones, 2002) Hypothesis:European integration and enlargement help advance economic growth in the EU, thanks to faster technological progress and technology diffusion (δh) and stronger ability of member-countries to collectively balance and diversify individual demographic shocks (δn ,δp , δm , δu)

  6. Empirical Model ( ) g_rgdp_pc Annual real GDP per capita growth (dependent variable) rejuv_rate Rate of labor force rejuvenation retir_rate Rate of labor force retirement migr_rate Rate of labor force migration unempl_rate Rate of ∆ in active LF due to unempl-nt popnosch Percent of total population without schooling ln_avgyrsch Log of average years of schooling in total population innov_index Index of innovativeness ln_diversity Log of ethno-linguistic fractionalization index X_dev , X = rejuv_rate,…ln_diversity

  7. Robust OLS Regression Results: Country Effects Notes: P-values in parentheses. Coefficients statistically significant at 1% ***, 5% **, 10% *.

  8. Robust OLS Regression Results: Union Effects

  9. Conclusion • Enlarging the union can help the EU boost economic growth and sustain its welfare system, but only temporarily. • Policies aimed at reducing unemployment and persuading older workers postpone retirement are more effective long-term solutions.

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