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Why Don’t Labor and Capital Flow Between Young and Old Countries?

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  • Lena Calahorrano

    (RWTH Aachen University)

  • Philipp an de Meulen

    (RWTH Aachen University)

Abstract

In this paper we investigate the twofold effect of demographics on international factor flows in a model with endogenous policy constraints on both foreign direct investment and migration. Factor price differences between industrialized and developing countries create economic incentives for migration to developed countries and for capital flows to less developed countries. However, political barriers to immigration in developed countries and expropriation risks in developing countries impede labor and capital flows. Using a political economy approach that takes into account different generations’ conflicting attitudes towards immigration and expropriation, we explore how these policy restrictions interact. We find that, in the presence of mobility constraints, larger demographic differences between countries need not result in an increase of factor flows.

Suggested Citation

  • Lena Calahorrano & Philipp an de Meulen, 2009. "Why Don’t Labor and Capital Flow Between Young and Old Countries?," MAGKS Papers on Economics 200942, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    • Handle: RePEc:mar:magkse:200942
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    References listed on IDEAS

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    1. Axel Börsch‐Supan & Florian Heiss & Alexander Ludwig & Joachim Winter, 2003. "Pension Reform, Capital Markets and the Rate of Return," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 151-181, May.
    2. Axel Börsch‐Supan & Florian Heiss & Alexander Ludwig & Joachim Winter, 2003. "Pension Reform, Capital Markets and the Rate of Return," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 151-181, May.
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    Cited by:

    1. Lena Calahorrano, 2011. "Population Aging and Individual Attitudes toward Immigration: Disentangling Age, Cohort and Time Effects," SOEPpapers on Multidisciplinary Panel Data Research 389, DIW Berlin, The German Socio-Economic Panel (SOEP).

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    More about this item

    Keywords

    Demographic Change; Political Economy; Migration; Foreign Direct Investment;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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