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Aging, transitional dynamics, and gains from trade

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  • Takumi Naito

    (Tokyo Institute of Technology, Japan)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

We formulate a two-country, two-good, two-factor, two-period-lived overlapping generations model to examine how population aging determines the pattern of and gains from trade. We obtain two main results. First, the aging country endogenously becomes a small country exporting the capital-intensive good, whereas the younger country endogenously dominates the world economy determining the world prices, in the free trade steady state. Second, although uncompensated free trade cannot be Pareto superior to autarky, there exists a compensation scheme applied within each country such that free trade is Pareto superior to autarky.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp215.pdf
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 215.

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Length: 21 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:kob:dpaper:215

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Keywords: Aging and trade; Gains from trade; Overlapping generations model; Transitional dynamics; Compensation scheme;

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  1. Tosun, Mehmet Serkan, 2008. "Endogenous fiscal policy and capital market transmissions in the presence of demographic shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 2031-2060, June.
  2. Kenc, Turalay & Sayan, Serdar, 2001. "Demographic shock transmission from large to small countries: An overlapping generations CGE analysis," Journal of Policy Modeling, Elsevier, vol. 23(6), pages 677-702, August.
  3. Martin Floden & David Domeij, 2004. "Population Aging and International Capital Flows," 2004 Meeting Papers 490, Society for Economic Dynamics.
  4. Harioka, C.Y., 1995. "A Cointegration Analysis of the Impact of the Age Structure of the Population on the Household Saving Rate in Japan," ISER Discussion Paper 0384, Institute of Social and Economic Research, Osaka University.
  5. Kemp, M.C. & Wong, K.Y., 1992. "Gains from Trade with Overlapping Generations," Working Papers 92-06, University of Washington, Department of Economics.
  6. Hans Fehr & Sabine Jokisch & Laurence Kotlikoff, 2004. "Fertility, Mortality, and the Developed World’s Demographic Transition," CESifo Working Paper Series 1326, CESifo Group Munich.
  7. Richard Johnson, 2004. "Economic policy implications of world demographic change," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 39-64.
  8. Aglietta, Michel & Chateau, Jean & Fayolle, Jacky & Juillard, Michel & Le Cacheux, Jacques & Le Garrec, Gilles & Touze, Vincent, 2007. "Pension reforms in Europe: An investigation with a computable OLG world model," Economic Modelling, Elsevier, vol. 24(3), pages 481-505, May.
  9. Mehdi Jelassi & Serdar Sayan, 2004. "Implications of Unequal Rates of Population Growth for Trade Revisited : Lessons from Closed Form Solutions to an Overlapping Generations General Equilibrium Model under Autarky and Trade Scenarios," Departmental Working Papers 0401, Bilkent University, Department of Economics.
  10. Sayan, Serdar, 2005. "Heckscher-Ohlin revisited: implications of differential population dynamics for trade within an overlapping generations framework," Journal of Economic Dynamics and Control, Elsevier, vol. 29(9), pages 1471-1493, September.
  11. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  12. Ohtake, F. & Horioka, C.Y., 1995. "Saving Motives in Japan," ISER Discussion Paper 0392, Institute of Social and Economic Research, Osaka University.
  13. Momota, Akira & Futagami, Koichi, 2005. "Demographic structure, international lending and borrowing in growing interdependent economies," Journal of the Japanese and International Economies, Elsevier, vol. 19(1), pages 135-162, March.
  14. Robin Brooks, 2003. "Population Aging and Global Capital Flows in a Parallel Universe," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 3.
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Cited by:
  1. Akira Yakita, 2012. "Different demographic changes and patterns of trade in a Heckscher–Ohlin setting," Journal of Population Economics, Springer, vol. 25(3), pages 853-870, July.
  2. Kenji Fujiwara & Tsuyoshi Shinozaki, 2010. "The Closed-Loop Effects Of Market Integration In A Dynamic Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 49(1), pages 1-12, 03.
  3. Kenji Fujiwara & Tsuyoshi Shinozaki & Akihiko Yanase, 2011. "Dynamic Interactions in Trade Policy in a Differential Game Model of Tariff Protection," Review of Development Economics, Wiley Blackwell, vol. 15(4), pages 689-698, November.

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