Dependency Ratio and International Trade

40 Pages Posted: 23 Mar 2011 Last revised: 1 May 2013

See all articles by Wei Tian

Wei Tian

Peking University - Guanghua School of Management

Yang Yao

Peking University - China Center for Economic Research (CCER)

Miaojie Yu

Peking University - China Center for Economic Research (CCER)

Yi Zhou

University of California, Berkeley - Department of Demography

Date Written: November 21, 2011

Abstract

Demographic structure has both the scale effect and the structural effect on bilateral trade. The "scale effect" refers that a low dependency ratio of exporter can produce and export more. Similarly, importer's low dependency ratio can induce more income and hence import more. The "structural effect" indicates that a change of exporter's dependency ratio would change its export composition based on its factor endowments. In this paper, we analyze the effect of demography on trade by augmenting the gravity equation with dependency ratios. Using a rich panel data set for 176 countries from 1970 to 2006 and controlling for multilateral resistance, we find strong empirical evidence consistent with our theoretical predictions. The finding is robust by econometric methods and by different specifications.

Keywords: Trade, Dependency Ratio, Gravity Equation, Inter-industry Trade, Intra-industry Trade

JEL Classification: F13, P51

Suggested Citation

Tian, Wei and Yao, Yang and Yu, Miaojie and Zhou, Yi, Dependency Ratio and International Trade (November 21, 2011). Available at SSRN: https://ssrn.com/abstract=1792564 or http://dx.doi.org/10.2139/ssrn.1792564

Wei Tian

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Yang Yao

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, 100871
China

Miaojie Yu (Contact Author)

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, Beijing 100871
China
+86-10-6275-3109 (Phone)

HOME PAGE: http://mjyu.ccer.edu.cn

Yi Zhou

University of California, Berkeley - Department of Demography ( email )

2232 Piedmont Avenue
Berkeley, CA 94720-2120
United States

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