Population Dynamics and Household Saving: Evidence from the Philippines

The economic growth implications due to changes in the nation’s age structure have been substantial. In the course of the demographic transition, countries experience an increasing share of the working age population relative to the total population and this creates favorable effects on economic growth. The changing age structure also influences household saving rate. This paper looks at the role of the slow demographic transition in the Philippines to its aggregate household saving rate using panel data from the Family Income and Expenditure Survey (1985 to 2003). It is known for a fact that household saving rate in the Philippines is one of the lowest in East Asia. The econometric model is based on the augmented life cycle model and the results suggest that the country’s population dynamics plays an important role in its household saving rate. The Philippines rapid population growth creates a big bulge in the lower portion of the age pyramid that resulted in a higher percentage of young dependents. This suggests that the country is paying a high price for its high population growth resulting to low saving rate and consequently, low economic growth. The results also show that remittance from migrant workers is a major source of aggregate household saving.