The Effect of Longevity and Population Aging on Saving: A Panel ARDL Approach

During recent years, a dramatic increase in life expectancy accompanied by low fertility and mortality has caused population aging and higher old-age dependency rates. This paper investigates the effects of longevity and population aging on saving by using the Pooled Mean Group (PMG) approach. A distinctive feature of this study is its demonstration of the separate roles of life expectancy and old-age dependency rate. The results of this study which spans 21 countries over 1971–2012 show that, in the long run, the theoretical implications are supported by the data and the demographic variables play an important role in explaining the differences in savings over time and across countries. According to the Life Cycle Model, there is a positive long-run relationship between longevity and saving and a negative long-run relationship between old-age dependency rate and saving. The absolute value of the longevity effect is greater than that of the old-age dependency rate. In the short run, of the two demographic variables, only the old-age dependency rate has the expected sign and is significant.