The paper aims to explore the impacts of bi-demographic structure on the current account and growth. Using a SVAR modeling, we track the dynamic impacts between these underlying variables. New insights have been developed about the dynamic interrelation between population growth, current account and economic growth. The long-run net impact on economic growth of the domestic working population growth and demand labor for emigrants is positive, due to the predominant contribution of skilled emigrant workers. Besides, the positive long-run contribution of emigrant workers to the current account growth largely compensates the negative contribution from the native population, because of the predominance of skilled compared to unskilled workforce. We find that a positive shock in demand labor for emigrant workers leads to an increasing effect on native active age ratio. Thus, the emigrants appear to be more complements than substitutes for native workers.
The macroeconomic literature, analyzing the effects of aging and demographic structures especially on the current account, have regained increasing interest among economists and politicians. This issue is growing importance, due to both the advanced and emerging economies dealing with an aging population problem in both the short and long term. According to the life cycle hypothesis (Modigliani and Ando 1957, Ando andModigliani 1963, Modigliani 1966), individuals manage variability in their consumption and savings during their life-cycles. This hypothesis predicts that people in their working age consume a smaller fraction of their current income, compared to younger and older people. Dynan et al. (2009) analyses explicitly the effects of the demographic structure on consumption and saving behaviors. They find that an increase in the middle-age (30s-50s) household-group tends to save relatively more than other ages-group, when their income peaks. However, an increase in the young and old-aged households tends to dissave; in other words, the young households borrow against expected future earnings, while senior households draw down their accumulated savings. A decline in child population, caused by a progressive decreasing in the birth rates, will reduce aggregate demand for goods and investments. Since the current account balance (CAB) is a net picture of the interactions between the consumption and investment behaviors during the life-cycle processes, it is affected by the demographic change and the population structure.
In this paper, our contribution to the existing literature is to consider among traditional factors, the impact of bi-demographic structure (native citizen and emigrant resident) on the current account. 1 We will measure the net impact of the bi-demographic composition (citizen versus expatriate) on the current 1 This new term of bi-demographic structure is justified by the intensity of the emigrant size to the native population. In 2016, the emigrant working age population was about 8.8 million which is very close to the native active population of 9.4 million. The total emigrant population was around 11.68 million, and the total of native population was about 20.06 million. In 1975, there was a large difference, the census of 1974 indicates that the expatriates of 25-64 age are about 0.35 million and the corresponding native citizens are around 1.9 million (see Figures C.0, Appendix C: Population pyramid).
account balance and economic growth by dropping (keeping) the emigrants’ population. Such modeling allows to empirically explore the evaluation of the group-age effects of expatriates and citizens on the current account balance of the Saudi economy.
According to a well-documented literature survey of Hassan, Salim and Bloch (2011), when the life cycle hypothesis (LCH) is extended to open economies, it implies that age composition affects the current account balance, with a positive effect of the working-age population and a corresponding negative effect of the young dependents population. 2 They indicate that there is a lack of a formal theoretical model, and that this area of research is at its first stage. More evidently, the impacts of the hybrid demographic structure on the current account in developed and developing countries have not been yet explored in related literature. This paper examines such issues and contributes to the underlying literature by splitting up the population into the natives and emigrants to check their respective effects on current account and economic growth. 3We find that a positive shock in domestic active age ratio contributes positively to the current account balance and increases the economic growth marginally. This means that the Saudi economy undergoes a fundamental transition in demographic and economic variables. By compiling demand labor for emigrant and native working-age population shocks, we detect that the net effect on the current account is positive indicating a tendency predominance of skilled emigrant workers. Further, the findings show that the positive shock in the migration flows leads to a negative impact on native active age ratio. Consequently, the emigration flow can reduce the labor market prospects of natives for some specific skills. According to our empirical outcome, the emigrants appear to be for natives i.e. Saudi workers more complements than substitutes. In Section 2 we review the literature discussing the relationship between demographic changes, current account balance and economic growth. Section 3 displays the demographic and economic stylized facts of Saudi Arabia. Section 4 presents and discusses the time series of empirical model and its estimation. The results will be discussed in Section 5 and we conclude in Section 6.
The pioneer papers addressing demographic factors focused on the analysis of the effects of the saving rates. By analyzing saving rates in a large cross-section sample, Leff (1969) finds a negat
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