Demographics and International Capital Flows: An Empirical Assessment

Balázs Zélity

No 2026-005, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: This paper empirically investigates whether shifts in demographic structure have an im-pact on cross-border capital flows. Country-level panel data with global coverage is utilised in fixed effects regressions. Demographic variables are instrumented by their predicted values, which are calculated using a shift-share methodology. Local projections estimates complement the results with a dynamic perspective. The main finding is that there is a persistent positive relationship between a country’s old-age dependency ratio and its current and financial account balance – suggesting that population ageing increases net capital outflows. From the perspective of the current account, the mechanism is increased national saving, primarily by households, and exports. From the perspective of the financial account, the increased net outflows are happening primarily through a direct investment channel.

Keywords: population ageing; FDI; saving; current account (search for similar items in EconPapers)
JEL-codes: F21 F23 F30 J11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2026-02
New Economics Papers: this item is included in nep-age, nep-fdg and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:wes:weswpa:2026-005

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