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Aging, pension reform, and capital flows: A multi-country simulation model

Listed author(s):
  • Börsch-Supan, Axel

    ()

    (Sonderforschungsbereich 504)

  • Ludwig, Alexander

    ()

    (Mannheim Research Institute for the Economics of Aging (MEA) and Sonderforschungsbereich 504)

  • Winter, Joachim

    ()

    (Mannheim Research Institute for the Economics of Aging (MEA))

In this paper, we present a quantitative analysis of the international capital flows induced by differences in population aging processes across countries and by pension reforms. In the vast majority of countries, demographic change will continue well into the 21st century. It is well known that within each country, demographic change alters the time path of aggregate savings, even more so in countries where fundamental pension reforms and shifts towards more pre-funding are implemented. While the patterns of population aging are similar in most countries, the timing differs substantially, in particular between industrialized and less developed countries. To the extent that capital is internationally mobile, population aging will therefore induce capital flows between countries. In order to quantify these effects, we develop a stylized multi-country overlapping generations model, and we use long-term demographic projections for several world regions to simulate international capital flows over a 50 year horizon. Our simulations suggest that capital flows from fast-aging industrial countries such as Germany to the rest of the world will be substantial. Closed-economy models of pen-sion reform are likely to miss quantitatively important effects of international capital mobility.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 01-08.

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Length: 30 pages
Date of creation: 15 Jan 2001
Handle: RePEc:xrs:sfbmaa:01-08
Note: This research project was partially supported by the Gesamtverband der deutschen Versicherungswirtschaft and by the Deutsche Forschungsgemeinschaft.
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