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Life Expectancy and Economic Growth: The Role of the Demographic Transition

51 Pages Posted: 19 May 2009  

Matteo Cervellati

University of Bologna - Department of Economics; Institute for the Study of Labor (IZA); Instituto de Análisis Económic (IAE) Barcelona

Uwe Sunde

Ludwig Maximilian University of Munich

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Abstract

In this paper we investigate the causal effect of life expectancy on economic growth by explicitly accounting for the role of the demographic transition. In addition to focusing on issues of empirical identification, this paper emphasizes the role of the econometric specification. We present a simple theory of the economic and demographic transition where individuals' education and fertility decisions depend on their life expectancy. The theory predicts that before the demographic transition improvements in life expectancy primarily increase population. Improvements in life expectancy do, however, reduce population growth and foster human capital accumulation after the onset of the demographic transition. This implies that the effect of life expectancy on population, human capital and income per capita is not the same before and after the demographic transition. Moreover, a sufficiently high life expectancy is ultimately the trigger of the transition to sustained income growth. We provide evidence supporting these predictions using data on exogenous mortality reductions in the context of the epidemiological revolution.

Keywords: life expectancy, demographic transition, epidemiological revolution, heterogeneous treatment effects

JEL Classification: E10, J10, J13, N30, O10, O40

Suggested Citation

Cervellati, Matteo and Sunde, Uwe, Life Expectancy and Economic Growth: The Role of the Demographic Transition. IZA Discussion Paper No. 4160. Available at SSRN: https://ssrn.com/abstract=1405928

Matteo Cervellati (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy
+39-2092605 (Phone)
+39-2092664 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/

Instituto de Análisis Económic (IAE) Barcelona

Barcelona, Bellaterra 08193
Spain

Uwe Sunde

Ludwig Maximilian University of Munich ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

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