Asymmetric Demographic Pressure in South-Mediterranean versus North-Mediterranean Economies and Its Impact on International Gross Capital Flows

Abstract:     
According to the life-cycle theory, countries with high and rising youth ratios or high and rising old-age ratios tend to have low savings relative to investment, which depresses their capital outflows. This paper puts life-cycle theory to the test and studies the impact of demographic change on international capital flows in the Middle East and North Africa (MENA) and the Southern European countries Greece, Italy, Spain and Portugal (GISP). These two regions are asymmetric in that MENA has a young population whereas the population of GISP has been aging rapidly. Moreover, MENA has a lower standard of living an is a much more closed economy, which may effect the ability to save and its impact on cross-border capital flows. The empirical analyses in this paper cover the period 1980-2011 and partly support the life-cycle theory for these two regions. Youth rates depressed domestic savings significantly in both the MENA and GISP regions, while aging as well as population growth had a positive impact in the GISP region. Also, domestic savings significantly caused international capital flows.

Number of Pages in PDF File: 22

Keywords: demography, international capital flows, savings, aging

JEL Classification: B31, D91, C3, E21, F2, F3, F4, J11

working papers series