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Demographics and International Capital Flows: An Empirical Assessment

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  • Balázs Zélity

    (Department of Economics, Wesleyan University)

Abstract

This paper empirically investigates whether shifts in demographic structure have an im-pact on cross-border capital flows. Country-level panel data with global coverage is utilised in fixed effects regressions. Demographic variables are instrumented by their predicted values, which are calculated using a shift-share methodology. Local projections estimates complement the results with a dynamic perspective. The main finding is that there is a persistent positive relationship between a country’s old-age dependency ratio and its current and financial account balance – suggesting that population ageing increases net capital outflows. From the perspective of the current account, the mechanism is increased national saving, primarily by households, and exports. From the perspective of the financial account, the increased net outflows are happening primarily through a direct investment channel.

Suggested Citation

  • Balázs Zélity, 2026. "Demographics and International Capital Flows: An Empirical Assessment," Wesleyan Economics Working Papers 2026-005, Wesleyan University, Department of Economics.
    • Handle: RePEc:wes:weswpa:2026-005
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    JEL classification:

    • 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
    • F30 - International Economics - - International Finance - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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