Global Macroeconomic Impacts of Demographic Change

Weifeng Liu and Warwick McKibbin

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: The world has been experiencing dramatic demographic change since the 1950s, with almost all countries facing ageing challenges this coming century. However, the timing and speed of this demographic transition are significantly asymmetric across countries. This paper examines the impacts of global demographic change on macroeconomic conditions, international trade, and capital flows in major economies in a global multiregion and multi-sector general equilibrium model. We separately simulate demographic shocks in six regions of the world economy to understand how each shock individually affects the world economy and then combine these shocks to obtain the consequences of global demographic change. The paper finds that future demographic change will have significant impacts on each region’s GDP, which will change the landscape of the world economy. However, the spillover effects on GDP across countries are relatively small. In young economies such as emerging Asia and Africa, while economic growth will significantly benefit from demographic dividends, demographic change does not improve per capita GDP. In ageing economies such as Japan and Europe, population ageing will decrease the real interest rate. However, this impact will be offset by rising interest rates in young economies. Due to the differential real interest rates, capital will flow from more ageing to less ageing economies. These capital flows can be substantial and beneficial for all economies.

Keywords: Global demographic change; consumption; investment; international capital flows; international trade; current account balances; DSGE; CGE; heterogeneous agents; G-Cubed (search for similar items in EconPapers)
JEL-codes: C63 C68 E21 F32 F41 J11 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2020-03
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2020-21

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