Demographic Changes and the Gains from Globalisation: An Analysis of Ageing, Capital Flows, and International Trade

This paper develops a multi-country overlapping-generations general equilibrium model to gauge the economic impact of demographic changes in the global economy and its transmission effects on different countries. Although severe demographic pressures contribute to significantly lower real GDP per capita across several regions in the world, globalisation through international trade generates an intertemporal gain from trade and a long-lasting improvement in the terms of trade of older OECD countries, which sustains their real consumption per capita (when goods from different geographical origins are assumed to be imperfectly substitutable), while globalisation through capital flows stimulates capital accumulation and growth in younger countries such as India and various parts of the rest of the world. The paper also illustrates that the very distinct demographic projections for China and India might, ceteris paribus, lead to striking divergences in their economic fortune.