Demographic Trends, EU Enlargementand Economic Growth

Zamira Simkins*

Walter Park

* University of Wisconsin-Superior

zsimkins@uwsuper.edu

What is the EU?

Candidates: Croatia, Turkey, Macedonia

Potential candidates: Albania, Iceland, Montenegro, Bosnia and Herzegovina, Serbia, Kosovo

Why is EU Enlarging?

Official explanation: “Enlargement is helping the EU cope better with the new world economic order” (Joaquin Almunia). “The EU has achieved far more through its gravitational pull than it could have ever done with a stick or a sward…we risk if we suddenly stop our accession process” (Olli Rehn).Research proposal: Demographic crisisPopulation ageing + Low birth rates => Declining active labor force + High unemployment + Increasing life expectancy => Potential economic and welfare system crises

Boeri et al (2001): By 2050, key EU-15 countries will have worker-retiree ratio of less than 1 worker per 1 retiree.

Why is EU Enlarging?

EU-15 Population pyramid, 2011

EU-10 Population pyramid, 2011

EU-25 Population pyramid, 2011

US Population pyramid, 2011

Age % of population Age % of population

Theoretical Model and Hypothesis (Jones, 2002)

Hypothesis: European integration and enlargement help advance economic growth in the EU, thanks to faster technological progress and technology diffusion (δh) and stronger ability of member-countries to collectively balance and diversify individual demographic shocks (δn ,δp , δm , δu)

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yitityitit LAKY

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iaitititaitit LhAKA

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umpnhhiiiiy

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Empirical Model ( )

g_rgdp_pc Annual real GDP per capita growth (dependent variable)

rejuv_rate Rate of labor force rejuvenation

retir_rate Rate of labor force retirement

migr_rate Rate of labor force migration

unempl_rate Rate of ∆ in active LF due to unempl-nt

popnosch Percent of total population without schooling

ln_avgyrsch Log of average years of schooling in total population

innov_index Index of innovativeness

ln_diversity Log of ethno-linguistic fractionalization index

X_dev , X = rejuv_rate,…ln_diversity

10010001

2020

t

ttt LF

POPCBRn

10010001

2020

t

ttt LF

POPCDRp

10010001

t

ttt LF

POPCNMm

1001

t

t LF

UNEMPu

1003

t

tt PAT

PGTI

)( iEU XX

ititit Xy

Robust OLS Regression Results: Country Effects

Notes: P-values in parentheses. Coefficients statistically significant at 1% ***, 5% **, 10% *.

Robust OLS Regression Results: Union Effects

Conclusion

Enlarging the union can help the EU boost economic growth and sustain its welfare system, but only temporarily.

Policies aimed at reducing unemployment and persuading older workers postpone retirement are more effective long-term solutions.