Working Paper: NBER ID: w8553
Authors: Axel Boersch-Supan; Alexander Ludwig; Joachim Winter
Abstract: Throughout the world, population aging is a major challenge that will continue well into the 21st century. While the patterns of the demographic transition are similar in most countries, timing differs substantially, in particular between industrialized and less developed countries. To the extent that capital is internationally mobile, population aging will therefore induce capital flows between countries. In order to quantify these international capital flows, we employ a multi-country overlapping generations model and combine it with long-term demographic projections for several world regions over a 50 year horizon. Our simulations suggest that capital flows from fast-aging industrial countries (such as Germany and Italy) to the rest of the world will be substantial. Closed-economy models of pension reform are likely to miss quantitatively important effects of international capital mobility.
Keywords: aging; capital mobility; pension reform
JEL Codes: E27; F21; G15; H55; J11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| population aging in industrialized countries (J26) | substantial capital flows to the rest of the world (F21) |
| aging populations (J11) | supply of capital available for investment abroad (F21) |
| transitioning to a partially funded pension system (H55) | existing savings (D14) |
| capital exports from Germany to OECD countries (F29) | peak around 2020 (E32) |
| aging (J14) | rate of return on capital (G31) |
| pension reforms (H55) | rate of return on capital (G31) |