Dependency Ratio and International Trade
40 Pages Posted: 23 Mar 2011 Last revised: 1 May 2013
Date Written: November 21, 2011
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: Suggested Citation