Space, Mortality, and Economic Growth

Abstract

At present, academic actuarial research involving the mortality modeling of multiple populations mainly focuses on factor-based approaches. This comes with little attention to interpretable models of mortality that take patterns across space into consideration. To address this, we propose a family of models that extend the seminal factor-based stochastic mortality modeling framework of Li and Lee (2005) to include spatial patterns. Specifically, in this paper, we study the relationship between economic growth, as represented by the real gross domestic product (GDP), and mortality of the contiguous United States. The proposed spatial lag of GDP with GDP (SLGG) model was used to produce forecasts of mortality rates and annuity pricing for each of the states of the United States and demonstrated the effects which economic growth has on mortality. A comparison of annuity pricing across space revealed that the SLGG model preserves more regional differences when it comes to pricing compared to the Li and Lee (2005) model. In a larger context, this research provides a blueprint for the inclusion of spatial components and economic growth into mortality modeling. Importantly, it establishes an empirical basis for the development of spatial natural hedging techniques.

Keywords: mortality, economic growth, spatial lag model, mortality forecasting, annuity pricing

JEL Classification: C1, C13, C31, C51, C53, J11