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Demographics and the Evolution of Global Imbalances

No. 332 (Revised April 2019)

Michael Sposi

Abstract: The age distribution evolves asymmetrically across countries, influencing relative saving rates and labor supply. Emerging economies experienced faster increases in working age shares than advanced economies did. Using a dynamic, multicountry model I quantify the effect of demographic changes on trade imbalances across 28 countries since 1970. Counterfactually holding demographics constant reduces net exports in emerging economies and boosts them in advanced economies. On average, a one percentage point increase in a country’s working age share, relative to the world, increases its ratio of net exports to GDP by one-third of a percentage point. These findings alleviate the allocation puzzle.


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