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Ageing and International Capital Flows

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Author Info
Erik Canton
Casper van Ewijk ()
Paul Tang

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Abstract

Ageing will have an impact on both savings and investment, potentially leading to substantial international capital flows. This paper provides a comprehensive overview, by considering various questions. What are the differences in demographic process of ageing across countries? Does ageing lead to a capital outflow? How mobile is capital? What are the effects of a lower rate of return on (pension) savings?

The evidence on international capital mobility casts doubt on the opportunities for investing on international capital markets. First, capital mobility is rather limited, especially with developing countries. This considerably reduces the scope for investing the surplus of the ageing countries in 'younger' areas. Second, the rapidly growing new and old Asian tigers appear to finance their growth by high rates of savings themselves.

As a consequence, savings and investment will be linked for the major economic blocks (US and Europe) in the OECD area. Discrepancies between savings and investment will not be absorbed by external financial markets, but will be solved by adjustment of the interest rate.

To avoid a steep rise in the tax burden on working generations requires timely policy action. Two broad options are open. The first is to invest more in human capital, for example by increasing the participation rate, especially of elderly workers. The second is to invest in financial and physical capital, for example by stimulating pension savings. Combining the two options is possible as well as sensible. However, a falling interest rate when savings are stimulated according to the second policy option makes the first policy option all the more important.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Documents with number 43.

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Date of creation: Jan 2004
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Handle: RePEc:cpb:docmnt:43

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Related research
Keywords: ageing; retirement; capital movement; international; demographic; demography;

Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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