Discussion Papers 2017

CIRJE-F-1059	"Demographics, Immigration, and Market Size"
Author Name	Fukumura, Koichi, Kohei Nagamachi, Yasuhiro Sato and Kazuhiro Yamamoto
Date	July 2017
Full Paper	PDF file
Remarks	Forthcoming in Japanese Economic Review.

Abstract
This paper constructs an overlapping generations model wherein people decide their number of children and levels of consumption for di¤erentiated goods. We further assume that immigration takes place according to the utility di¤erence between inside and outside a country. We show that an improvement in longevity has three e¤ects on the market size and welfare: First, it decreases the number of children. Second, it increases the per capita expenditure on consumption. Finally, it increases immigration. The rst e¤ect has negative impacts on the market size and welfare whereas the latter two e¤ects have positive impacts. We then calibrate our model to match Japanese and U.S. data from 1955 to 2014 and nd that the negative e¤ects dominate the positive ones. 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

Abstract

This paper constructs an overlapping generations model wherein people decide their number of children and levels of consumption for di¤erentiated goods. We further assume that immigration takes place according to the utility di¤erence between inside and outside a country. We show that an improvement in longevity has three e¤ects on the market size and welfare: First, it decreases the number of children. Second, it increases the per capita expenditure on consumption. Finally, it increases immigration. The rst e¤ect has negative impacts on the market size and welfare whereas the latter two e¤ects have positive impacts. We then calibrate our model to match Japanese and U.S. data from 1955 to 2014 and nd that the negative e¤ects dominate the positive ones. 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