Population Aging and Domestic Investment―An Analysis Using International Panel Data―

It has been pointed out that the recovery of domestic investment in Japan has been slow compared to the relatively strong corporate earnings. Similarly sluggish growth in capital investment has been observed in other advanced countries in the process of recovery from the global financial crisis. While the change in the link between macroeconomic developments and investment likely reflects a number of factors, the aging of the population, which are most pronounced in Japan, likely play an important role. To investigate the effects of aging on domestic investment in a country, we run regressions using an international panel dataset covering about 160 countries around the world. As channels through which aging affects domestic investment, we consider two possible channels:（1） a decline in the savings rate, and（ 2） a decline in the expected growth rate. We find that aging leads to lower domestic investment through both channels. Our result appears to suggest that one of the reasons for the sluggish investment observed in a considerable number of countries including Japan is the rapid population aging in countries worldwide. JEL Classification Codes: E21, E22, J11