Title
Aging, transitional dynamics, and gains from trade
Abstract
We formulate a two-country, two-good, two-factor, two-period-lived overlapping generations model to examine
how population aging determines the pattern of and gains from trade. We obtain two main results. First, the aging
country endogenously becomes a small country exporting the capital-intensive good, whereas the younger country
endogenously dominates the world economy determining the world prices, in the free trade steady state. Second, although
uncompensated free trade cannot be Pareto superior to autarky, there exists a compensation scheme applied within
each country such that free trade is Pareto superior to autarky.
Takumi NAITO
Tokyo Institute of Technology
Laixun ZHAO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501
Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059