The economic implications of population aging on current account balance

Tomas Kabrt

Economic Analysis and Policy, 2024, vol. 84, issue C, 1895-1909

Abstract: This paper focuses on the demographic determinants of current account balance (CAB) across income groups, continents, and time periods between 1993 and 2021. The benchmark model employs a panel data analysis, particularly a two-way effects estimator (Baltagi, 2021), with CAB as the main dependent variable, while savings rate (SAV) is used as an alternative dependent variable. It was found that the old dependency ratio, fertility rate, life expectancy, population growth, and mortality rate have a statistically significant effect on CAB and SAV, but the effects are heterogeneous across income groups and continents. In Africa, an increase in the old dependency ratio has a negative effect on CAB in accordance with the theories of Modigliani and Sterling (1983), Graham, (1987), and Masson and Tryon (1990). Fertility rate has a negative effect on CAB in Africa while having an ambiguous effect in Asia and Europe. In line with the findings of Mason and Lee (2006), there is a positive relationship between fertility rates and CAB and SAV in lower-middle-income countries and negative relationship in high-income countries. Conversely, population growth affects negatively CAB and SAV in lower middle-income countries and positively in high-income countries.

Keywords: Population aging; Balance of payments; Demography; Old dependency ratio (search for similar items in EconPapers)
JEL-codes: D15 F41 J11 N20 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:84:y:2024:i:c:p:1895-1909

DOI: 10.1016/j.eap.2024.10.053

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