Demographic trends and international capital flows in an integrated world

Demographic projections for the 21st century indicate that population is ageing all over the world. This paper examines the impact of projected demographic trends on international capital flows.

The document notes that in an increasingly globalised world, cross-country differences in demographic dynamics can result in current account differences via capital flows from fast-ageing regions to regions with high population growth. The suggested main findings comprise:

• over the first half of the century, emerging regions will finance the demand of capital coming from the developed world where population ageing is relatively advanced
• in particular, in the coming decades China will be the world’s main creditor region
• however, in the second half of the century, India will take over this leading position because of the predicted decline in the Chinese labor force
  

Conclusions are:

• the economic consequences of demographic changes depend on the degree of capital market integration between regions
• therefore, policies affecting the demographic structure of a country, like family or immigration policies, need to account for the degree of capital market integration
  

In addition, the author believes that the introduction of region-specific goods, which differ in their skill-intensity, would allow study of the terms of trade between the various regions.