Smaller family sizes and ageing populations may reduce long-run savings rates

As developing countries embark on demographic transitions, the phenomenon of declining birth rates and family size becomes an increasingly important policy dilemma. Demography has implications for a country’s labour supply, savings rates, and capital formation, all of which shape and influence its economic growth. In today’s blog, the authors argue that increases in aggregate savings from declining family sizes may be transitory, and as populations begin ageing, a declining ratio of working-aged to retired workers may reduce long-run savings rates.