Cross-Border Macroeconomic Implications of Demographic Change


This paper identifies key issues about the macroeconomic implications of demographic
transitions and summarizes what is presently understood about them. I emphasize the cross-border
aspects — interactions among national economies through exchange rates and external-sector
transactions — because that part of the subject has so far received relatively less attention.

Given the nature of this symposium, issues and conclusions are presented in a non-technical
way without provision of the detailed underlying analysis. Amplifications, identification of technical
points, and references to the literature are typically confined to footnotes. Readers who prefer to
avoid such details can ignore the footnotes without loss of the main argument.

It should be stated at the outset that this subject area requires substantially more research
before it will be possible to summarize conclusions and policy recommendations with full
confidence. My paper is an interim overview, not a comprehensive summary.

I begin by providing a background overview of how enhanced cross-border economic
integration has influenced the macroeconomic evolution of national economies. Next I identify major
analytical points that should significantly influence how one interprets the macroeconomic
consequences of demographic changes. With that background, I illustrate by postulating specific
examples of a decline in fertility and summarizing the resulting outcomes. A further section contrasts
the differing effects of population aging stemming from increases in life expectancy rather than
declines in fertility. I summarize issues raised by the response of alternative public pension systems
to demographic transitions. Finally, I address the question of whether the lagging demographic
transitions of developing countries might be able to ease the adjustments to population aging in the
advanced higher-income economies.