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Demographic Change, Foresight and International Capital Flows

  • Melanie Lührmann

    ()

    (Munich Center for the Economics of Aging (MEA))

This paper studies the relationship between demographic change and international capital flows using a large cross-country time-series dataset. The analysis provides empirical evidence of a substantial and twofold demographic effect on international capital flows: First, capital flows are induced by changes in present demography. Countries with a large working-age population tend to be net exporters of capital, relatively younger economies importers of capital and extremely aged countries with a major population share of elderly also tend to import capital. In particular, high youth dependency induces current account deficits. Second, the paper provides evidence that future demographic changes are anticipated and affect current net capital flows, too. This twofold demographic effect on international capital flows can be hampered by capital controls and other capital market frictions. The impact of these frictions is also explored in the paper. The results indicate that they indeed affect capital flows.

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Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 03038.

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Date of creation: 16 Nov 2003
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Handle: RePEc:mea:meawpa:03038
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