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The South's Demographic Transition and International Capital Flows in a Financially Integrated World Economy

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  • Frédéric Gannon
  • Gilles Le Garrec
  • Vincent Touzé

Abstract

In the coming decades, the countries of the South will be facing the aging of the population faster than the countries of the North. This will have long-term economic consequences for the South but also for the North through the changing of international capital flows. To study the latter, we build a simple two-region two-period OLG model, assuming fully integrated financial markets. This allows us to determine the analytical expression of the world interest rate dynamics at general equilibrium and the resulting capital flows accruing to each of the two regions (the North and the South). From there, we analyse how a reduction in either fertility or mortality alters the magnitude of the international capital flows. Contradictory effects are evidenced. To clear up any ambiguity and to study the South's demographic transition, which involves a succession of shocks, we propose numerical simulations. Even if the results stress that the institutional context and technological catching-up may matter, they suggest in a rather general way that the declines in both fertility and mortality tend to reduce the relative capital needs of the Southern economies and consequently their capital inflows. This, in turn, would be beneficial to the North's productive capacity, which should then hold more capital.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Frédéric Gannon & Gilles Le Garrec & Vincent Touzé, 2019. "The South's Demographic Transition and International Capital Flows in a Financially Integrated World Economy," Documents de Travail de l'OFCE 2019-17, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1917
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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