The effect of demographic change on economic growth : the implications for Malta

Abstract

Economists and demographers have conflicting views on how demographic change restricts, promotes or is independent of growth. The effect of a change in demographics on economic growth requires comprehensive analysis as it highly depends on the policies and mechanisms which are in place. This study uses growth accounting to analyse the impact of a change in demographics through labour productivity, labour utilization and demographic factors. In a context of an ageing population, higher dependency ratios are a detriment to economic growth. However, developments in human capital quality and quantity as measured through labour productivity and utilization should also be taken into consideration as they could offset the negative impact of demographic change on growth. Policies implemented along the years to improve labour efficiency and increase labour utilization have left a positive impact on economic growth outweighing the negative repercussions of higher dependency ratios. As the population is ageing, government policy will play a vital role. Policies tackling the dependency ratio and improves labour productivity and utilization will become of utmost importance.