Demographics and the Evolution of Global Imbalances

Michael Sposi

No 2102, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: The age distribution evolves asymmetrically across countries, influencing capital flows through differences in aggregate saving rates and labor supply. I build a general equilibrium model featuring overlapping generations and international trade where dynamics are driven by capital accumulation and borrowing and lending. The equilibrium can be replicated by a model in which every country is inhabited by a representative household that experiences an endogenous, time-varying discount factor reflecting the co-evolution of the entire age distribution and relevant prices. This equivalence affords computation of the exact transitional dynamics. I calibrate the model to match national accounts and bilateral trade data and quantify how demographic forces affected capital flows between 28 countries since 1970. On average, increasing a country's mean age by one year boosts its current account by 0.4 percent of GDP. Observed bilateral trade patterns dictate the cross-country dispersion and magnitude of capital flows in response to changes in any individual country's demographics.

Keywords: Demographics; Global imbalances; Dynamics; International trade (search for similar items in EconPapers)
JEL-codes: F11 F21 J11 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-age, nep-dge, nep-int and nep-opm
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https://ftp1.economics.smu.edu/WorkingPapers/2021/SPOSI/SPOSI-2021-03.pdf (application/pdf)

Related works:
Journal Article: Demographics and the evolution of global imbalances (2022)
Working Paper: Demographics and the Evolution of Global Imbalances (2019)
Working Paper: Demographics and the Evolution of Global Imbalances (2019)
Working Paper: Demographics and the Evolution of Global Imbalances (2019)
Working Paper: Demographics and the Evolution of Global Imbalances (2017)
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