Geoscience Reference
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involving six regions (Illinois, Indiana, Michigan, Ohio, Wisconsin and the rest of
US) was developed. The economy was assumed to be closed to the rest of the world.
There are two types of economic agents in each region: a representative firm and
households and in each year, there are 65 overlapped generations in the household
sector. The federal government operates the social security system that operates in
all regions. Households now have three decisions for disposable income: (1) alloca-
tion between consumption and saving (inter-temporal); (2) allocation between
goods produced in any region (inter-regional) and (3) allocation between education
(investment in human capital) and working.
The results revealed significant differences across regions in existing levels of
productivity and growth rates over time. In contrast to the findings from Korea,
there were some significant positive impacts from investment in human capital,
although the time period for them to occur was extensive (greater than 10 years).
However, the interregional CGE model used in the US analysis was not as compre-
hensive as the one for Korea and one suspects that these differences together with
the way in which initial endowments from one generation influence future
generations [see Sadahiro and Shimasawa (
2002
)] account for the variations in
outcomes. Clearly, the interactions with financial considerations and assumptions
about government behavior need to be addressed more effectively. Further, adop-
tion of an assumption about inter-temporal optimization will need to be modified to
account for idiosyncratic behavior; in addition, the institutional responses to almost
continual skill upgrading will need to be considered to ensure that there is a greater
degree of flexibility and responsiveness to changing market conditions.
11.5
Limitations and Further Research Agenda
One of the important considerations that has not been fully embraced in all the
models is the impact on equity of mitigation problems. Consider the Korean case:
while the aging trend could cause a reduction in the GDP by 1.94 % on average, the
damage could be compensated for through an increase in the educational
investments in the 20-29 age cohort by 12 % for at least 15 consecutive years.
However, the investment policy has a negative impact on the regional income
distribution due to different elasticity values of education by age cohort with
respect to labor productivity. However, the issue becomes more complicated
when other factors and policy options are considered—as revealed in Sect.
11.2
.
As Borsch-Supan (
2004
) noted, regional policies for coping with the challenges of
shifting demographic structures can be practically formulated if the responses of
economic agents are specified according to economic incentives and motivations
for labor participation by recognizing age-specific productivities. For example,
which populations are willing to migrate from labor-abundant to labor-scarce
regions? What policy measures lead to greater participation in training and educa-
tion programs? What barriers exist that discourage women from participating in the
labor market? What are the positive and negative effects of raising the mandatory
retirement age? Should national or
local governments encourage increased
