Fertility, Longevity, and Capital Flows

Bárány, Zsófia and Coeurdacier, Nicolas and Guibaud, Stéphane (May 2016) Fertility, Longevity, and Capital Flows. IHS Economics Series 321, 65 p.

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Abstract or Table of Contents

The neoclassical growth model predicts large capital flows towards fast-growing emerging countries. We show that incorporating fertility and longevity into a lifecycle model of savings changes the standard predictions when countries differ in their ability to borrow inter-temporally and across generations through social security. In this environment, global aging triggers capital flows from emerging to developed countries, and countries’ current account positions respond to growth adjusted by current and expected demographic composition. Data on international capital flows are broadly supportive of the theory. The fact that fast-growing emerging countries are also aging faster, while having less developed credit markets and pension systems, explains why they are more likely to export capital. Our quantitative multi-country overlapping-generations model explains a significant fraction of the patterns of capital flows, across time and across developed and emerging countries.

Item Type: IHS Series
Keywords: capital flows, life cycle savings, demographics, social security
Classification Codes (e.g. JEL): F21, J11
Research Groups: Financial Markets and Econometrics
Macroeconomics and Public Finance
Status: Published
Date Deposited: 13 May 2016 09:34
Last Modified: 12 Oct 2017 10:15
URI: http://irihs.ihs.ac.at/id/eprint/3926

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