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Demography, credit and institutions: A global perspective

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  • Arezki, Arezki

Abstract

This paper examines the role of age structure and its interaction with various capital market imperfections in driving international capital �ows in an empirical framework. Using panel data covering the period 1970 to 2000 for up to 115 countries, results indicate the existence of a di¤erentiated e¤ect in the relationship between age structure and international capital flows. Good institutions allow for a differentiated impact of age structure on saving and investment, opening the scope for an impact of age structure in driving international capital flows. In contrast, bad institutions result in no e¤ect of age structure on international capital flows. Despite increased credit availability contributing to reduced aggregate saving, this will nevertheless magnify the role of the population age structure in driving international capital flows. Over the past three decades, age structure changes are estimated to have contributed to improve the current account position by five percent of GDP in more advanced aging countries. However, around the year 2020, population age structure changes are projected to deteriorate the current account position in the latter countries which will experience a drop in saving. In other regions, the faster the current aging process, the sharper the projected improvement in the current account position. This improvement is projected to reverse itself, at a later stage in time in regions with a slower aging process. Also, our results suggest that in order to take advantage of their younger population in the form of increased foreign capital in�ows, countries that are less advanced in the demographic transition would need to improve the quality of their institutional arrangements before the "window of opportunity" closes.

Suggested Citation

  • Arezki, Arezki, 2010. "Demography, credit and institutions: A global perspective," MPRA Paper 27682, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27682
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    1. Fair, Ray C & Dominguez, Kathryn M, 1991. "Effects of the Changing U.S. Age Distribution on Macroeconomic Equations," American Economic Review, American Economic Association, vol. 81(5), pages 1276-1294, December.
    2. Giovanni L. Violante & Orazio P. Attanasio, 2000. "The Demographic Transition in Closed and Open Economies: A Tale of Two Regions," IDB Publications (Working Papers) 1313, Inter-American Development Bank.
    3. Ayhan Kose & Kenneth Rogoff & Eswar S Prasad & Shang-Jin Wei, 2003. "Effects of Financial Globalization on Developing Countries; Some Empirical Evidence," IMF Occasional Papers 220, International Monetary Fund.
    4. Higgins, Matthew, 1998. "Demography, National Savings, and International Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 343-369, May.
    5. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
    6. Shleifer, Andrei & Wolfenzon, Daniel, 2002. "Investor protection and equity markets," Journal of Financial Economics, Elsevier, vol. 66(1), pages 3-27, October.
    7. Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 715-741.
    8. Arezki, Rabah, 2010. "Asymmetric demographic shocks and institutions: The impact on international capital flows and welfare," MPRA Paper 27683, University Library of Munich, Germany.
    9. David M. Cutler & James M. Poterba & Louise M. Sheiner & Lawrence H. Summers, 1990. "An Aging Society: Opportunity or Challenge?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 1-74.
    10. Giovanni L. Violante & Orazio P. Attanasio, 2000. "The Demographic Transition in Closed and Open Economies: A Tale of Two Regions," Research Department Publications 4194, Inter-American Development Bank, Research Department.
    11. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2008. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 347-368, May.
    12. repec:idb:wpaper:412 is not listed on IDEAS
    13. repec:fth:harver:1490 is not listed on IDEAS
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    1. Arezki, Rabah, 2010. "Asymmetric demographic shocks and institutions: The impact on international capital flows and welfare," MPRA Paper 27683, University Library of Munich, Germany.

    More about this item

    Keywords

    F2; F4;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F2 - International Economics - - International Factor Movements and International Business

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