Global Macroeconomic Impacts of Demographic Change

The world has been experiencing dramatic demographic change since the 1950s, with
almost all countries facing ageing challenges this coming century. However, the timing
and speed of this demographic transition are significantly asymmetric across countries.
This paper examines the impacts of global demographic change on macroeconomic
conditions, international trade, and capital flows in major economies in a global multiregion
and multi-sector general equilibrium model. We separately simulate demographic
shocks in six regions of the world economy to understand how each shock individually
affects the world economy and then combine these shocks to obtain the consequences
of global demographic change. The paper finds that future demographic change will
have significant impacts on each region’s GDP, which will change the landscape of the
world economy. However, the spillover effects on GDP across countries are relatively
small. In young economies such as emerging Asia and Africa, while economic growth
will significantly benefit from demographic dividends, demographic change does not
improve per capita GDP. In ageing economies such as Japan and Europe, population
ageing will decrease the real interest rate. However, this impact will be offset by rising
interest rates in young economies. Due to the differential real interest rates, capital will
flow from more ageing to less ageing economies. These capital flows can be substantial
and beneficial for all economies.