Aging, international capital flows and long-run convergence

Frederic Ganon, Gilles Le Garrec () and Vincent Touzé
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Frederic Ganon: University of Le Havre - EDEHN
Authors registered in the RePEc Author Service: Frédéric J. Gannon

No 2016-09, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

Abstract: This paper analyses how the economic, demographic and institutional differences between two regions -one developed and called the North, the other emerging and called the South- drive the international capital flows and explain the world economic equilibrium. To this end, we develop a simple two-period OLG model. We compare closed-economy and open-economy equilibria. We consider that openness facilitates convergence of South’s characteristics towards North’s. We examine successively the consequences of a technological catching-up, a demographic transition and an institutional convergence of pension schemes. We determine the analytical solution of the dynamics of the world interest rate and deduce the evolution of the current accounts. These analytical results are completed by numerical simulations. They show that the technological catching-up alone leads to a welfare loss for the North in reason of capital flows towards the South. If we add to this first change a demographic transition, the capital demand is reduced in the South whereas its saving increases in reason of a higher life expectancy. These two effects contribute to reduce the capital flows from the North to the South. Finally, an institutional convergence of the two pension schemes reduces the South’s saving rate which increases the capital flow from the North to the South.

Keywords: International Capital flows; OLG; Economic convergence; demographic transition (search for similar items in EconPapers)
JEL-codes: D91 F40 J10 O33 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-age, nep-dge, nep-mon and nep-opm
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Related works:
Working Paper: Aging, international capital flows and long run convergence (2016)
Working Paper: Aging, international capital flows and long run convergence (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fce:doctra:1609

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