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Capital Flows and Demographics—An Asian Perspective

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  • Mr. 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.

Suggested Citation

  • Mr. Erik Lueth, 2008. "Capital Flows and Demographics—An Asian Perspective," IMF Working Papers 2008/008, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/008
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    References listed on IDEAS

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    Cited by:

    1. Guonan Ma & Haiwen Zhou, 2009. "China's Large and Rising Net Foreign Asset Position," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 17(5), pages 1-21, September.
    2. Yoon, Jong-Won & Kim, Jinill & Lee, Jungjin, 2018. "Impact of Demographic Changes on Inflation and the Macroeconomy," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 40(1), pages 1-30.
    3. Guonan Ma & Zhou Haiwen, 2009. "China’s evolving external wealth and rising creditor position," BIS Working Papers 286, Bank for International Settlements.

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