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A slowdown in population growth reduces business dynamism by
increasing the share of older firms. We explore how this affects productivity
growth using a business dynamics model with endogenous
productivity. The growth rate of older firms is a key factor in determining
the impact of population growth on productivity. Quantitatively,
this effect is substantial for both the U.S. and Japan.
In the U.S., slowing population growth reduces TFP growth by 0.3
percentage points from 1970 to 2060, with an even larger effect
in Japan. However, TFP growth reacts slowly due to short-run
counterbalancing factors.
