DemoGravity: World Population and Trade in the 21st Century

Abstract

The availability and composition of labor is fundamental for the structure of international trade. Key in this respect is the so-called demographic dividend, which is the potential economic growth stemming from low dependency ratios. We use the gravity model to link long-run changes of the demographic dividend to geographical changes in world trade for the 21st century. All our scenarios point towards the same conclusion: compared to the current situation, North America and Europe will no longer be the center of global trade in 2100 due to their aging populations. In contrast, South Asia and Sub-Saharan Africa will experience a substantial increase in their share of world trade, while the impact of the demographic drag facing China will be most pronounced after 2050; its share in world trade will decline significantly. Overall, our results point towards the under-studied, yet important role of past and future demographic developments in generating demographic dividends that shape world trade.