Modeling Global Demographic Change: Results for Japan

Jeremy Nguyen and Warwick J. McKibbin
Warwick McKibbin
Warwick J. McKibbin Former expert - Economic Studies, Center on Regulation and Markets, Distinguished Professor of Economics & Public Policy - Crawford School of Public Policy, The Australian National University

August 1, 2004

This paper explores the impact of demographic change in a series of increasing complex
economics models. The models range from a simple two-country symmetric theoretical
model to an empirically based 4-country MSG3 model, which represents the characteristics
of Japan, United States, Rest of OECD and Rest of World. We first explore the properties of
the two-country theoretical model with both a global and a single country stylized
demographic transition. The results are similar to those found in the approach of Bryant
(2004). We then explore the same shock in models that are made more complex by
increasingly representing the empirical characteristics of the global economy. We find that
although the basic insights from simplest theoretical models continue to hold, the quantitative
results change significantly when we focus particularly on the demographic shock in a model
representing the empirical characteristics of Japan.

In a final part of the paper, we use the complete empirical global model to explore the likely
impacts on Japan of the demographic change already experienced from 1970 and examine the
likely changes to be experienced out to 2040.