Does Human Capital Compensate for Depopulation?

Fertility rates have been falling persistently over the past 50 years in most rich countries. Simultaneously, the trend of outward migration from poorer to richer countries has been steady. These two forces contributed to declining population growth, population aging, and — in an increasing number of countries — even to depopulation. In this paper, we quantify the effect of decreasing fertility on the aggregate human capital stock taking into account endogenous behavioral responses related to rising investments in education and health. We find that the human capital impact of declining fertility is partly compensated through these behavioral responses when including the full set of countries in our regressions. For countries subject to depopulation, the compensatory effect is substantially weaker and, in many specifications, even insignificant