Population growth and the transfer paradox in an overlapping generations model

Kojun Hamada, Tsuyoshi Shinozaki and Mitsuyoshi Yanagihara

Review of Development Economics, 2019, vol. 23, issue 1, 331-347

Abstract: This study investigates whether the transfer paradox (donor enrichment and/or recipient impoverishment) occurs when a donor and a recipient have different population growth rates by using a one‐sector, two‐country overlapping generations model. We show that if the population growth rates differ, neither donor enrichment nor recipient impoverishment occurs in the steady state under dynamic efficiency. This result is in stark contrast to the existing results that the transfer paradox might occur when a donor and a recipient country have different marginal propensities to save, assuming that both have the same population growth rate. Furthermore, we present the condition for the transfer problem to occur on the transition path and show that the transfer paradox is less likely to occur as the economy converges to the steady state. Our result shows that the prevailing finding that the transfer paradox can occur in an overlapping generations model is limited to the special case of countries having the same population growth rate.

Date: 2019
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