INTERNATIONAL MIGRATION, AGING, AND EXTERNAL IMBALANCES: A DYNAMIC ANALYSIS WITH A TWO-COUNTRY LIFE-CYCLE ECONOMY

James Yango Wabenga and Kevin Moran

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops a two-country, open-economy quantitative model to analyze the macroeconomic implications of demographic shifts, including population aging, declining population growth rates, increased longevity, and international migration. The model builds on the overlapping generations (OLG) framework of Gertler (1999), incorporating both young and old households in each country. Entry (population growth), retirement, and exit (death) rates are calibrated to match observed demographic patterns, such as population growth rates, average retirement ages, and life expectancy. The model accommodates various demographic scenarios-such as differential population growth across countries and migration from developing to developed economies-as well as economic scenarios, including divergent productivity levels and imperfect global financial integration. As such, it provides a valuable quantitative tool for policy analysis on these issues. The model’s capabilities are demonstrated through simulations of key demographic and economic scenarios, focusing primarily on how population aging, international migration, and productivity differences affect external balances (net exports and the current account) in two regions, seen as the global North and the global South. The findings highlight the importance of demographic trends as a main factor influencing overall savings and external balances. Specifically, demographic shocks lead to trade and current account surpluses in the North, while productivity differences shape investment patterns across regions. The results indicate that, over time, an aging economy like the global North is likely to run a trade deficit, save more, have a favorable net external position, and maintain a current account surplus.

Keywords: Open economy macroeconomics; Current account balance; Trade balance; International migration; Financial markets; Demographic trends (search for similar items in EconPapers)
JEL-codes: E21 E44 E62 F22 F32 F41 J11 (search for similar items in EconPapers)
Date: 2024-10-03, Revised 2025
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