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Demographics and the Evolution of Global Imbalances

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  • Michael Sposi

    (Southern Methodist University)

Abstract

Differential changes in the age distribution across countries has sharp implications for the evolution of global imbalances. I develop a dynamic, multicountry, Ricardian trade model with endogenous labor supply to measure the effect of demographics on trade imbalances across 28 countries from 1970-2014. Changes in the age distribution impact a country's net exports directly through the demand for net saving and indirectly through relative labor supply. Counterfactually removing demographic-induced changes to saving demand imply substantially lower net exports in emerging economies that experience relatively fast increases in working age shares, and higher net exports in advanced economies that experienced flat, and even declining, working age shares. On average, one percentage point increase in a country's working age share relative to the world increases the ratio of net exports to GDP by 14 percentage points. This finding helps reconcile the allocation puzzle.

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  • Michael Sposi, 2019. "Demographics and the Evolution of Global Imbalances," 2019 Meeting Papers 262, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:262
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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