In their paper, Börsch-Supan, Ludwig and Winter focus on ageing-induced capital flows, choosing Germany as an example. They derive their capital-flow forecasts using a multi-country overlapping generations growth model, and combine it with long-term demographic projections for several world regions. Moreover, they distinguish three different capital-mobility scenarios (closed economy, liberalized capital flows among EU countries, or liberalized capital flows among OECD countries) and two different pension systems (Germany’s current pay-as-you-go pension system and a one-third transition to a funded system). The strength of this approach is — in my opinion — the very detailed modelling of the future development of the age structure. Return differentials caused by differences in the ageing process between countries are therefore the driving forces of the capital flows in this model.
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