Does a shrinking labor force reduce FDI inflows in OECD countries?

ABSTRACT

If the problem of population ageing persists and the working-age population in OECD countries shrinks, then according to the neoclassical theory of economic growth, capital inflows into the OECD countries will decrease. Based on this premise, we investigate the dynamic links between the working-age population (% of total population) and net FDI inflows (% of GDP), controlling for trade openness, domestic investment and market size for a panel of 22 OECD countries over the period of 1972–2019. Bidirectional causalities are identified between the working-age population (% of total population) and net FDI inflows (% of GDP). A decline in the working-age population (% of total population) is found to be associated with a significant decline in net FDI inflows (% of GDP).

KEYWORDS:

• Cointegration
• FDI
• long-run
• short-run
• unit root

JEL CLASSIFICATION:

• F21
• J11

Disclosure statement

No potential conflict of interest was reported by the author(s).