Patterns of Trade between Countries with Differing Age Compositions of Populations: 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 effects of resulting age composition differences across countries on international trade flows under alternative simulation scenarios, using an overlapping-generations general equilibrium model. The differing age compositions of populations 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. After exploring the patterns of trade between the country with the relatively young and faster-growing population and the low-population growth country experiencing population aging, the paper discusses the implications of simulation results for trade between such young-population countries as Mexico and Turkey and their regional partners within NAFTA and the EU, where population aging has long set in.