Chapter 4. Global Demographic Trends : Consumption, Saving, and International Capital Flows

In this chapter we review the recent literature on the effects of changing global demographic trends on consumption, factor prices and social security. We also construct an overlapping generation model with four regions of the world. The model is calibrated so that we match some basic statistics of the last few decades. We assume that the model was in a steady state in 1990, input projected demographic trends, which converge to common values across regions by 2200, and make suitable assumptions on productivity profiles and total factor productivity. This allows us to study the evolution of factor prices, current accounts, and welfare during the transition and explore the differences between open and closed economies, when we limit factor mobility to capital mobility and make different assumptions about future trends in demographics and productivity.