 How are the international capital flows of rapidly aging countries affected by the elderly working longer?Economic Modelling, 2021, vol. 97, issue C, 285-297 Abstract: The labor force participation rate of the elderly has markedly increased in countries with a rapidly aging population. To assess the interaction effects between elderly labor supply and population aging, this paper examines international capital flows. Using an open-economy overlapping-generations model, we show analytically that current account balances in countries with higher longevity deteriorate at a faster rate when the elderly work longer. This interaction effect mainly arises from the productivity effect of life expectancy, which amplifies the impact of an elderly labor supply through the improvement in health, and thus productivity, in old age. We test the empirical validity of our theoretical results using US current account data. The interaction effect between the labor force participation rate of the elderly and life expectancy is significantly negative, suggesting that the theoretical prediction holds empirically. Therefore, recent trends in population aging and retirement age will worsen current account balances. Keywords: International capital flows; Elderly labor supply; Population aging; Current account balances; Cointegration (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:97:y:2021:i:c:p:285-297 DOI: 10.1016/j.econmod.2020.11.003 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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