Macroeconomics of Structural Change and Population Ageing

Abstract

This dissertation studies the macroeconomics of structural change and population ageing.

Chapter 1 investigates the influence of international trade on structural transformation (ST) in emerging economies. Analyzing rapidly growing, trade-dependent countries such as South Korea, Singapore, and Malaysia, we observe deviations from standard ST patterns: these economies maintain unusually high manufacturing shares in both production and trade, while the volume of service trade exceeding that of agriculture. To explain these anomalies, we develop a general equilibrium model for open economies that incorporates both tradable and non-tradable services. Our findings suggest that partial tradability of services accelerates the shift of resources toward the service sector, reducing the manufacturing share. However, in economies with strong manufacturing productivity, the decline in the manufacturing share is mitigated by sustained competitiveness in manufacturing. These results underscore the importance of service tradability and sector-specific productivity growth in understanding ST in rapid-growing economies.

Chapters 2 and 3 address the challenges of population aging in South Korea. Chapter 2 develops a three-period overlapping generations (OLG) model with endogenous fertility to evaluate the effectiveness of government policies in raising the Total Fertility Rate (TFR). The model incorporates government interventions through income taxation, parental leave payments, child allowances, and public education. Calibrated to South Korean data — where the TFR declined to a world-low of 0.72 in 2023 — our simulations indicate that increasing child allowances is the most effective policy to boost fertility rates. However, this policy also leads to reduced human capital growth and lower output and consumption per worker, due to the standard trade-off between the quantity and quality of children. Additionally, our findings reveal that the high cost of private education significantly deters higher fertility.

Chapter 3 extends previous analyses by incorporating pension benefits that are also affected by population ageing. Calibrating the model to South Korean data, we evaluate the effectiveness of various government policies — child allowances, parental leave payments, public education, pension benefits and income tax rate — on fertility rates and key macroeconomic variables. Although child allowances remain the most effective policy for raising fertility, it also entails reduced pension benefits per recipient. While a higher tax rate encourages fertility and initially raises pension benefits, it also weakens long-term human capital accumulation and wage growth, eventually eroding per-recipient pension benefits and per-worker economic well-being.