TY - JOUR
T1 - Aging, transitional dynamics, and gains from trade
AU - Naito, Takumi
AU - Zhao, Laixun
PY - 2009/8
Y1 - 2009/8
N2 - We formulate a two-country, two-good, two-factor, two-period-lived overlapping generations model to examine how population aging determines the pattern of and gains from trade. Two main results are obtained. First, the aging country endogenously becomes a small country exporting the capital-intensive good, whereas the younger country endogenously dominates the world economy determining the world prices, in the free trade steady state. Second, although uncompensated free trade cannot be Pareto superior to autarky, there exists a compensation scheme applied within each country such that free trade is Pareto superior to autarky.
AB - We formulate a two-country, two-good, two-factor, two-period-lived overlapping generations model to examine how population aging determines the pattern of and gains from trade. Two main results are obtained. First, the aging country endogenously becomes a small country exporting the capital-intensive good, whereas the younger country endogenously dominates the world economy determining the world prices, in the free trade steady state. Second, although uncompensated free trade cannot be Pareto superior to autarky, there exists a compensation scheme applied within each country such that free trade is Pareto superior to autarky.
KW - Aging and trade
KW - Compensation scheme
KW - Gains from trade
KW - Overlapping generations model
KW - Transitional dynamics
UR - http://www.scopus.com/inward/record.url?scp=67349260713&partnerID=8YFLogxK
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U2 - 10.1016/j.jedc.2009.02.006
DO - 10.1016/j.jedc.2009.02.006
M3 - Article
AN - SCOPUS:67349260713
SN - 0165-1889
VL - 33
SP - 1531
EP - 1542
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
IS - 8
ER -