Aging, transitional dynamics, and gains from trade

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Aging, transitional dynamics, and gains from trade

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Takumi Naito (Tokyo Institute of Technology)
Laixun Zhao (Research Institute for Economics and Business Administration, Kobe University)

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Takumi Naito

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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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
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Handle: RePEc:kob:dpaper:215

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Article
- Naito, Takumi & Zhao, Laixun, 2009. "Aging, transitional dynamics, and gains from trade," Journal of Economic Dynamics and Control, Elsevier, vol. 33(8), pages 1531-1542, August. [Downloadable!] (restricted)

Find related papers by JEL classification:
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

This paper has been announced in the following NEP Reports:

NEP-AGE-2008-06-27 (Economics of Ageing)
NEP-ALL-2008-06-27 (All new papers)
NEP-DGE-2008-06-27 (Dynamic General Equilibrium)
NEP-INT-2008-06-27 (International Trade)
NEP-OPM-2008-06-27 (Open MacroEconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Richard Johnson, 2004. "Economic policy implications of world demographic change," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 39-64. [Downloadable!]
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. [Downloadable!] (restricted)
Kemp, M.C. & Wong, K.Y., 1992. "Gains from Trade with Overlapping Generations," Discussion Papers in Economics at the University of Washington 92-06, Department of Economics at the University of Washington.
Other versions:
- Kemp, Murray C & Wong, Kar-yiu, 1995. "Gains from Trade with Overlapping Generations," Economic Theory, Springer, vol. 6(2), pages 283-303, July.
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)
Other versions:
- Domeij, David & Flodén, Martin, 2004. "Population Ageing and International Capital Flows," CEPR Discussion Papers 4644, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Domeij, David & Flodén, Martin, 2003. "Population Aging and International Capital Flows," Working Paper Series in Economics and Finance 539, Stockholm School of Economics, revised 21 Oct 2003. [Downloadable!]
- Martin Floden & David Domeij, 2004. "Population Aging and International Capital Flows," 2004 Meeting Papers 490, Society for Economic Dynamics.
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. [Downloadable!] (restricted)
Horioka, C.Y., 1992. "The Impact of the Age structure of the Population on the Household Saving Rate in Japan : A Cointegration Analysis," Papers 287, Osaka - Institute of Social and Economic Research.

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