International Trade with Pensions and Demographic Shocks
24 Pages Posted: 1 Sep 2012
Date Written: May 1, 2012
Abstract
The central question of this paper is how international trade and specialization are affected by different designs of pension schemes and asymmetric demographic changes. In a model with two goods, two countries and two production factors, we find that countries with a relatively large unfunded pension scheme will specialize in the production of labour intensive goods. If these countries are hit by a negative demographic shock, this specialization will intensify in the long run, which is contrary to the prediction of the classical Heckscher-Ohlin-Samuelson model. Eventually, these countries may even completely specialize in the production of those goods. The effects spill over to other countries, which will move away from complete specialization in capital intensive goods as the relative size of their labour intensive goods sector will also increase.
Keywords: Pensions, international spillovers, decrease in fertility, trade, specialization
JEL Classification: E27, F16, H55, J19
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