Trade and Pension Systems

Abstract

This article concentrates on the possible relationship between trade and pension systems. I consider trade between a capital-abundant home and a labor-abundant foreign country. The underlying model is a two-period overlapping generations-model augmented with factor-price changes resulting from price-variations through globalization. First, I analyze the resulting income effects of the young generation and of the retirees in a pay-as-you-go (PAYG) pension system and a fully funded pension system. Considering contribution rates and population growth, the retirees might improve their income situation in a fully funded system. Second, I analyze the effects on life income when a pension system change is implemented simultaneous with the reduction of trade barriers. A less expensive change can be expected, if free trade is permitted.

Keywords: Pay-as-you-go pension system, fully funded pension system, Heckscher-Ohlin-Samuelson, trade with low-wage-countries

JEL Classification: F10, H55