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Capital Flows and Demographics--An Asian Perspective

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Author Info
Erik Lueth
Abstract

This paper calibrates the production functions of 176 countries to fit 2003 data and examines the capital flows that emerge, when labor forces change according to the 2007 UN population projections. It finds that demographic factors are no help in correcting today's global imbalances; that Japan's capital outflows have as much to do with population aging as with the yen carry-trade; and that China is key to understanding Asia's demographic impact on the world. It also finds that Asia offers the greatest arbitrage opportunities worldwide during the demographic transition and has the greatest potential for regional financial integration among world regions. Moreover, the demographic transition is unlikely to result in an asset price meltdown and could even raise world interest rates under perfect capital mobility.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/8.

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Length: 23 pages
Date of creation: 31 Jan 2008
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Handle: RePEc:imf:imfwpa:08/8

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Keywords: Capital flows ; Asia ; Labor ; Population ; Aging ; Interest rates ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. Axel Boersch-Supan & Alexander Ludwig & Joachim Winter, 2005. "Aging, Pension Reform, and Capital Flows: A Multi-Country Simulation Model," NBER Working Papers 11850, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Barry P. Bosworth & Ralph C. Bryant & Gary Burtless, 2004. "The Impact of Aging on Financial Markets and the Economy: A Survey," Working Papers, Center for Retirement Research at Boston College 2004-23, Center for Retirement Research. [Downloadable!]
  3. Hans Fehr & Sabine Jokisch & Laurence Kotlikoff, 2003. "The Developed World's Demographic Transition - The Roles of Capital Flows, Immigration, and Policy," NBER Working Papers 10096, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Cutler, D.M. & Poterba, J.M. & Sheiner, L.M. & Summers, L.H., 1990. "An Aging Society: Opportunity Or Challenge," Working papers 553, Massachusetts Institute of Technology (MIT), Department of Economics.
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  5. E Philip Davis & Christine Li, 2003. "Demographics And Financial Asset Prices In The Major Industrial Economies," Economics and Finance Discussion Papers 03-07, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
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  6. Ronald Lee, 2003. "The Demographic Transition: Three Centuries of Fundamental Change," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 167-190, Fall. [Downloadable!] (restricted)
  7. Higgins, Matthew, 1998. "Demography, National Savings, and International Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 343-69, May.
  8. Krüger, Dirk & Ludwig, Alexander, 2006. "On the Consequences of Demographic Change for Rates of Return to Capital, and the Distribution of Wealth and Welfare," CEPR Discussion Papers 5834, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. repec:fth:harver:1490 is not listed on IDEAS
  10. Rafael Gómez & Pablo Hernández de Cos, 2006. "The importance of being mature - the effect of demographic maturation on global per-capita GDP," Working Paper Series 670, European Central Bank. [Downloadable!]
  11. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April. [Downloadable!] (restricted)
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  12. David Domeij & Martin Flodén, 2006. "Population Aging And International Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 1013-1032, 08. [Downloadable!] (restricted)
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  13. Robert Holzmann, 2000. "Can Investments in Emerging Markets Help to Solve the Aging Problem?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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Cited by:
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  1. Guonan Ma & Zhou Haiwen, 2009. "China’s evolving external wealth and rising creditor position," BIS Working Papers 286, Bank for International Settlements. [Downloadable!]
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