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Aging, transitional dynamics, and gains from trade

Author

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  • Takumi Naito

    (Tokyo Institute of Technology, Japan)

  • Laixun Zhao

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

We formulate a two-country, two-good, two-factor, two-period-lived overlapping generations model to examine how population aging determines the pattern of and gains from trade. We obtain two main results. First, the aging country endogenously becomes a small country exporting the capital-intensive good, whereas the younger country endogenously dominates the world economy determining the world prices, in the free trade steady state. Second, although uncompensated free trade cannot be Pareto superior to autarky, there exists a compensation scheme applied within each country such that free trade is Pareto superior to autarky.

Suggested Citation

  • Takumi Naito & Laixun Zhao, 2008. "Aging, transitional dynamics, and gains from trade," Discussion Paper Series 215, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:215
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    References listed on IDEAS

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    Cited by:

    1. Igor Fedotenkov, 2014. "Optimal asymmetric taxation in a two-sector model with population ageing," Bank of Lithuania Working Paper Series 15, Bank of Lithuania.
    2. Ichiroh Daitoh, 2020. "Rates of Population Decline in Solow and Semi-Endogenous Growth Models: Empirical Relevance and the Role of Child Rearing Cost," Keio-IES Discussion Paper Series 2020-004, Institute for Economics Studies, Keio University.
    3. Kenji Fujiwara & Tsuyoshi Shinozaki & Akihiko Yanase, 2011. "Dynamic Interactions in Trade Policy in a Differential Game Model of Tariff Protection," Review of Development Economics, Wiley Blackwell, vol. 15(4), pages 689-698, November.
    4. Houda Haffoudhi & Rihab Bellakhal, 2020. "Threshold Effect of Globalization on Democracy: the Role of Demography," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(4), pages 1690-1707, December.
    5. Gu, Ke & Stoyanov, Andrey, 2018. "Skills, Population Aging, and the Pattern of Trade," MPRA Paper 84349, University Library of Munich, Germany.
    6. Davis, Colin & Hashimoto, Ken-ichi & Tabata, Ken, 2022. "Demographic structure, knowledge diffusion, and endogenous productivity growth," Journal of Macroeconomics, Elsevier, vol. 71(C).
    7. Richard Chisik & Harun Onder & Dhimitri Qirjo, 2015. "Aging, Trade and Migration," Working Papers 058, Toronto Metropolitan University, Department of Economics.
    8. repec:spo:wpmain:info:hdl:2441/6dhper3pho8nspmsluhrt4lcd8 is not listed on IDEAS
    9. Kexu Wu & Zhiwei Tang & Longpeng Zhang, 2022. "Population Aging, Industrial Intelligence and Export Technology Complexity," Sustainability, MDPI, vol. 14(20), pages 1-24, October.
    10. Frédéric Gannon & Gilles Le Garrec & Vincent Touzé, 2016. "Aging, international capital flows and long run convergence," SciencePo Working papers Main hal-03475630, HAL.
    11. Ichiroh DAITOH & Hiroaki SASAKI, 2023. "At the Right Time:Ramsey-Cass-Koopmans Model with Declining Population," Discussion papers e-23-002, Graduate School of Economics , Kyoto University.
    12. Wu, Feifei & Yang, Hongna & Gao, Bo & Gu, Yan, 2021. "Old, not yet rich? The impact of population aging on export upgrading in developing countries," China Economic Review, Elsevier, vol. 70(C).
    13. Wu, Feifei & Xu, Peipei & Gao, Bo & Ma, Jing, 2024. "Export contraction and input switching in an aging China," China Economic Review, Elsevier, vol. 85(C).
    14. Frédérique GANNON & Gilles LE GARREC & Vincent TOUZÉ, 2020. "The South’s Demographic Transtiton and International Capital Flows in a Financially Integrated World Economy," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 86(1), pages 1-45, March.
    15. Andrea Papetti, 2021. "Population aging, relative prices and capital flows across the globe," Temi di discussione (Economic working papers) 1333, Bank of Italy, Economic Research and International Relations Area.
    16. Fedotenkov, Igor & Van Groezen, Bas & Meijdam, Lex, 2019. "International trade with pensions and demographic shocks," Journal of Pension Economics and Finance, Cambridge University Press, vol. 18(1), pages 140-164, January.
    17. Igor Fedotenkov & Bas Groezen & Lex Meijdam, 2014. "Demographic Change, International Trade and Capital Flows," Open Economies Review, Springer, vol. 25(5), pages 865-883, November.
    18. repec:hal:spmain:info:hdl:2441/5mcsclpvpm8lsadm6engnbebt7 is not listed on IDEAS
    19. repec:hal:spmain:info:hdl:2441/6dhper3pho8nspmsluhrt4lcd8 is not listed on IDEAS
    20. repec:spo:wpmain:info:hdl:2441/5mcsclpvpm8lsadm6engnbebt7 is not listed on IDEAS
    21. Akira Yakita, 2012. "Different demographic changes and patterns of trade in a Heckscher–Ohlin setting," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(3), pages 853-870, July.
    22. Kenji Fujiwara & Tsuyoshi Shinozaki, 2010. "The Closed‐Loop Effects Of Market Integration In A Dynamic Duopoly," Australian Economic Papers, Wiley Blackwell, vol. 49(1), pages 1-12, March.
    23. Sasaki, Hiroaki, 2017. "Population growth and trade patterns in semi-endogenous growth economies," Structural Change and Economic Dynamics, Elsevier, vol. 41(C), pages 1-12.
    24. Yakita, Akira, 2014. "Involuntary unemployment and sustainability of bond-financed fiscal deficit," Journal of Macroeconomics, Elsevier, vol. 41(C), pages 79-93.
    25. Fedotenkov, I., 2012. "Pensions and ageing in a globalizing world. International spillover effects via trade and factor mobility," Other publications TiSEM 8830bc21-4138-4479-8459-a, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    Aging and trade; Gains from trade; Overlapping generations model; Transitional dynamics; Compensation scheme;
    All these keywords.

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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