Demographic trends and international capital flows in an integrated world

This paper examines the impact of projected demographic trends on international capital flows. The analysis builds upon a ten-region overlapping generations model of the world economy where capital is mobile across regions. Results show that, over the first half of the century, emerging regions will finance the demand of capital coming from the developed world where population aging is relatively advanced. In particular, the findings suggest that in the coming decades China will be the world's main creditor region. However, in the second half of the century, India will take over this leading position because of the predicted decline in the Chinese labor force. An additional analysis demonstrates that the economic consequences of demographic changes depend on the degree of capital market integration between regions. (C) 2011 Elsevier B.V. All rights reserved.