Impact of Age–Structure Transition on India’s Current Account Balance: An Empirical Analysis

Abstract

This article studies the impact of age structure variables on the current account balance (CAB) by using panel data for 57 countries from 1980 to 2014. The Gudmundsson and Zoega (Economic Letters 123[2]:183–186, 2014) methodology is used to calculate the age-adjusted CAB for these countries and India-specific results are analysed in comparison with Brazil, Russia, China and South Africa. Empirical results show that India’s age-adjusted CAB would have experienced surpluses had it not been for the high share of its dependent population, especially the young. Further, the age-adjustment factor for India shows a gradual decline, and a larger share of working-age population in future may help in reducing its current account deficit (CAD). These results highlight the importance of demographic variables in explaining and predicting changes in the CAB and its implication for the attainment of India’s macroeconomic objective of external stabilisation. JEL Classification: E21, F32, J11