Browsing by Subject "Overlapping-generations general equilibrium model"

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Open Access
The free trade implications of differential fertility and longevity between countries: a 3x2x2 overlapping-generations general equilibrium analysis
(2006) Arbatlı, Cemal Eren
overlapping-generations model with lifetime uncertainty and altruistic agents to investigate the welfare implications of fertility and longevity differentials between trading countries. In the first model (the basic model), agents optimistically assume that they will survive into old age with certainty and have a constant saving rate. Agents in the second model (the anticipation model), on the other hand, correctly anticipate the mortality rates and adjust their saving rates accordingly. The models are solved both under autarky and a Heckscher-Ohlin free trade setting. The analytical results on the direction of the effects of changing population dynamics under lifetime certainty are complemented by numeric results under lifetime uncertainty that provide important insights on how increasing longevity and declining fertility rates may affect the welfare prospects of countries that are at different stages of demographic transition. The solutions reveal that longevity differentials are sufficient to create grounds for trade between countries with equal as well as different population sizes. In a closed economy, when mortality rates are perfectly anticipated, the marginal benefit of higher longevity gradually diminishes as the life expectancy increases and/or the fertility rate decreases. Consistently with this result, as demographic transition proceeds, free trade under longevity differentials tends to make the lowmortality country better off and the high-mortality country worse off compared to autarky.
Open Access
An investigation of the effects of population dynamics on growth and trade in an overlapping-generations general equilibrium model
(2004) Jelassi, Mohamed Mehdi
In this study, variants of a two-sector, two-factor overlapping-generations model are solved under autarky and free trade scenarios to investigate the effects of population dynamics on growth and trade. Simulation exercises are also performed to develop a deeper understanding of the analytical findings and to visualize the time paths of model variables. These numerical exercises complement analytical solutions, providing significant insights into the nature of initial conditions affecting growth and convergence performance of closed economies. Concerning open economies, possible implications of population growth differentials for the patterns of trade flows between economies that are identical except for population growth rates are explored as in the static Heckscher-Ohlin model. Our analysis shows that population growth rate differentials give way to differences in relative commodity and factor prices, creating the basis for comparative advantages in the same way as suggested by the static Heckscher-Ohlin model. We also show that these demographic differences prevent comparative advantages from getting eliminated in the long-run, thereby allowing trade to continue to occur even after the steady state is reached. Our solutions reveal, however, that trade does not necessarily improve welfare for both parties in the long-run. The explanation we offer for this nicely complements previous studies that obtained similar results using overlapping-generations general equilibrium models within two country set-ups with steady populations.