The Effects of Demographic Changes on Current Accounts: Evidence from OECD Countries

Abstract

This paper empirically investigates the effects of demographic changes on current accounts. The analysis (based on panel least squares and weighted least squares models) shows substantial demographic effects on population ageing and current account balances in OECD countries. First, the negative impact of population ageing on general savings results in deteriorating current account balances. This result suggests that current account balances increase with the relative size of the working-age population and decrease when the elderly dependency ratio rises. This paper specifically distinguishes between two groups: the ageing society and the aged society. Empirical results indicate that demographic changes, such as dependency ratios, have no effect on current account balances in the ageing society group, but have a definite effect on current account balances in the aged society group, as previous research findings suggest. Therefore, current accounts will be positively benefited by encouraging birth rates and immigration from other countries in the long run.