Directions of Trade Flows and Labor Movements between High- And Low-Population Growth Countries: An Overlapping Generations General Equilibrium Analysis

This paper considers a two-country world where the population in one country grows faster than the other, and investigates the implications of the addition of non-stationary population dynamics to a simple 2- commodity, 2-factor model of international trade within an overlapping- generations framework. The two countries in the world considered are assumed to be identical in every respect except, for their population growth rates initially. The effects of differential speed of population growth on relative factor endowments and patterns of international trade are explored by comparing simulation results obtained from the overlapping-generations general equilibrium model under autarky and trade scenarios. Unequal population growth rates are shown to give rise to differentials in wage rates and rentals for capital under autarky conditions. This, in turn, causes costs of production and relative prices to differ, creating the grounds for trade in the sense of Heckscher-Ohlin (HO). Yet, the results from simulation exercises indicate that static welfare results from the standard 2x2x2 HO model can not be generalized to hold in a dynamic setting with overlapping generations of individuals.