INTERNATIONAL MIGRATION, AGING, AND EXTERNAL IMBALANCES: A DYNAMIC ANALYSIS WITH A TWO-COUNTRY LIFE-CYCLE ECONOMY

Wabenga, James Yango and Moran, Kevin (2024): INTERNATIONAL MIGRATION, AGING, AND EXTERNAL IMBALANCES: A DYNAMIC ANALYSIS WITH A TWO-COUNTRY LIFE-CYCLE ECONOMY.

Abstract

This paper develops a two-country, open-economy quantitative model to analyze the macroeconomic implications of demographic shifts, including population aging, declining population growth rates, increased longevity, and international migration. The model builds on the overlapping generations (OLG) framework of Gertler (1999), incorporating both young and old households in each country. Entry (population growth), retirement, and exit (death) rates are calibrated to match observed demographic patterns, such as population growth rates, average retirement ages, and life expectancy. The model accommodates various demographic scenarios-such as differential population growth across countries and migration from developing to developed economies-as well as economic scenarios, including divergent productivity levels and imperfect global financial integration. As such, it provides a valuable quantitative tool for policy analysis on these issues. The model’s capabilities are demonstrated through simulations of key demographic and economic scenarios, focusing primarily on how population aging, international migration, and productivity differences affect external balances (net exports and the current account) in two regions, seen as the global North and the global South. The findings highlight the importance of demographic trends as a main factor influencing overall savings and external balances. Specifically, demographic shocks lead to trade and current account surpluses in the North, while productivity differences shape investment patterns across regions. The results indicate that, over time, an aging economy like the global North is likely to run a trade deficit, save more, have a favorable net external position, and maintain a current account surplus.

• Item Type: MPRA Paper
• Language: English
• Keywords: Open economy macroeconomics; Current account balance; Trade balance; International migration; Financial markets; Demographic trends
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; F - International Economics > F2 - International Factor Movements and International Business > F22 - International Migration; F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; J - Labor and Demographic Economics > J1 - Demographic Economics > J11 - Demographic Trends, Macroeconomic Effects, and Forecasts

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