Population Age Structure And Current Account

The change to the world's population structure not only affects the trend and speed of growth of the population itself,but also has a huge amount of influence on the cooperation and trade between countries and the development of these economic bodies.This paper utilizes an improved Diamond overlapping generations model and proves that the population structure that a great influence on a country's current account.This paper uses the three most important metrics to represent the population structure of a country,namely,the children dependency,the old dependency,and the young adult ratio.The World Bank development index data from 1960 to 2016 is used with 29 developed countries and 38 developing countries,and the effects of the three independent variables and four control variables are verified with econometric measurements.The paper discovers that the change of population structure has significant effect on the international current account balance.From the global data,the increase of children dependency will result in a statistical significant increase to the economic burden on the young adults that increases the deficit to the current account.The increase of the old dependency,which is the aging of the society,decreases the savings made in the society and increases spending that has a negative effect to the current account.The increase of the young adult ratio will statistical-significantly increase the current account deficit as well.This is because for developed countries,the process of entering the job market requires the consumption of large amount of resources(training,education,etc.),while for the developing countries,especially those that are quite underdeveloped,the job market does not have enough openings,causing an increase of unemployment rate with the increase of the young adult population,that eventually increases spending,decreases savings,and increases current account deficit.In addition,the growth of GDP,the real effective exchange rate,and the income per capita have significant negative effect on current account.