Essays on International Demographic Economics

Abstract

This dissertation focuses on including realistic demographic structures in macroeconomic frameworks in order to circumvent existing modeling issues, explain current international trends, and forecast the implications of new social policies. The first chapter covers the closure of the small open economy model and a comparison of demographic structures. Closing the small open economy model has been a stumbling block in studying the dynamic implications of such models since the typical procedure of equating the after-tax return on traded bonds to the rate of time preference involves imposing constraining knife-edge conditions. This paper replaces the infinitely-lived representative agent framework with a plausible demographic structure. This yields a well-behaved macrodynamic equilibrium without imposing any knife-edge conditions. The second chapter develops a two-country overlapping generations neoclassical growth model including a realistic demographic structure for the purpose of analyzing the impact of country-level asymmetries in demographic and structural characteristics on cross-country interdependence. I find that an increase in the relative life expectancy of a population will produce a positive per-capita net foreign asset position. Furthermore, I demonstrate how cross-country differences in the rate of time preference will augment the decline of the American net foreign asset position generated by the demographic transition. Lastly, I present how an adjustment in the pension benefit of a pay-as-you-go social security structure will induce a change in the simulated net foreign asset position. Lastly, in the third chapter, I develop a modified version of the Mierau and Turnovsky (2015) model to determine the impact of the reversal of China’s state fertility policy commonly known as the “one-child policy”. In order to estimate the impact of the policy reversal on the labor market, I forecast the survival function forward 20 years to determine the old-age dependency rate. I augment the analysis by including a simulation estimating the impact of the proposed 5-year extension of the retirement age. From this analysis I develop two key results. The first is that the government will be forced to reduce the national pension benefit by 2.85 percent if they continue with their established policies. The second is that the proposed 5 year retirement age extension will be sufficient to keep the pension system solvent during the demographic transition