Population dependency and inflation: a study of high- and upper-middle-income countries

Abstract

In recent years, whether demographic change creates an inflationary trend is examined frequently. Debates on whether the decrease in the population at active working age and the dependency ratio because of the increasing old age cause an inflationary trend points to an area where no consensus can be reached. In this context, the tendency of the total population dependency ratio, young population dependency ratio and elderly population dependency ratio to affect inflation, which represents population aging and demographic change, was examined in this study. Panel cointegration, panel ARDL and panel causality analysis methods were used in the study conducted on 29 Upper Middle and High Income country economies in the period covering 1980-2020. The main findings got from the study reveal that the elderly population dependency ratio, which is defined as the elderly population dependency in the short term, has a deflationary effect, while the young population dependence has an inflationary effect in the long term.

Key words: population dependency, inflation, cointgration, panel data analysis, Dumitrescu-Hurlin panel causality