Aging in OECD Countries and Capital Flows into Developing Countries: A Policy Analysis Using an Overlapping Generations Model

Lakshmi Raut, California State University, Fullerton

The pattern of demographic transitions in OCED and developing countries suggest that foreign capital flows from OECD countries to less developed countries can help ease the aging problems of OECD countries. In reality, however, very little capital flows to developing countries. In this paper, I investigate the reasons for this observed pattern of capital flows theoretically, and empirically using cross-country regressions. I use the parameter estimates of the regression models to calibrate an extended production function that incorporates the differences in infrastructure, human capital level and governance in the two regions. Using an overlapping generations model, I then numerically simulate the effects of various policies on capital flows into developing countries and on aging problems of the OECD countries.