Demographics, immigration, and market size
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Demographics, immigration, and market size Koichi Fukumura1 · Kohei Nagamachi1 · Yasuhiro Sato2 · Kazuhiro Yamamoto3 Received: 21 August 2018 / Revised: 25 April 2019 / Accepted: 25 April 2019 / Published online: 13 December 2019 © Japanese Economic Association 2020
Abstract This paper investigates the implications of similarities and differences in demo‑ graphics between Japan and the United States. For this purpose, we construct an overlapping generations model wherein people decide their number of children and levels of consumption for differentiated goods. We assume that immigration takes place according to the utility difference between inside and outside a country. We uncover possible effects of an improvement in longevity on the market size and wel‑ fare. We then calibrate our model to match the Japanese and US data from 1955 to 2015 and pin down the dominant effect. Moreover, our counterfactual analyses show that accepting immigration in Japan can be useful in overcoming population and market shrinkage caused by an aging population. Keywords Demographics · Market size · Immigration · Overlapping generations model JEL Classification F22 · J11 · R23
* Koichi Fukumura [email protected]‑u.ac.jp Kohei Nagamachi [email protected] Yasuhiro Sato [email protected]‑tokyo.ac.jp Kazuhiro Yamamoto [email protected]‑u.ac.jp 1
Kagawa University, 2‑1 Saiwai‑cho, Takamatsu, Kagawa, Japan
2
University of Tokyo, 7‑3‑1 Hongo, Bunkyo‑ku, Tokyo, Japan
3
Osaka University, 1‑7 Machikaneyama‑cho, Toyonaka, Osaka, Japan
13
Vol.:(0123456789)
598
The Japanese Economic Review (2020) 71:597–639
1 Introduction It is now widely recognized that Japan faces population declines, which have caused a lot of controversy because of needs for various political responses including revi‑ sion of pension system. Such demographic changes consist of changes in fertility and mortality, and changes in immigration flow. For the former, Japan has expe‑ rienced consecutive improvements in longevity and declines in fertility during the past half century while for the latter, it has accepted little immigration, resulting in current declines in population. When we turn to other countries, we observe similar trends in fertility and mortality whereas we can find distinct differences in immigra‑ tion flow. The United States would be the most prominent example showing such similarity and difference. In fact, as shown in Table 1, both Japan and the United States experienced consecutive improvements in longevity and declines in fertility. In contrast to such similar trends in fertility and mortality, we have observed distinct differences in immigration flow between these countries: the United States has absorbed immigrants much more intensively than Japan. Such a difference in immigration flow inevitably results in a difference in population growth, which has become visible in recent years. Until 1980s, both countries experienced population growth with approximately 1% annually. After that, population growth rate in Japan has largely declined an
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