Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 1999:21: Age Distributions and the Current Account -A Changing Relation?

Thomas Lindh () and Bo Malmberg
Additional contact information
Thomas Lindh: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Bo Malmberg: Institute of Housing Research, Postal: Department of Economics, Uppsala University, Box 785, SE-801 29 Gävle, Sweden, Sweden

Abstract: In recent research age distribution effects on the current account have been found in cross-country panel regressions. The reason is different effects on saving and investment from cohort-size variation. In a panel of annual OECD data 1960-1995, we find that the age effects on saving are similar to results on world samples but the effects on investment are very different. The respective age profiles of saving and investment are much more similar in the OECD sample. This may be one factor accounting for the home-country bias found in international capital markets. Disaggregating investment we find that young cohorts have a positive correlation with housing investment while older but still active cohorts have a positive correlation with business investment. The differences in saving and investment effects are, nevertheless, sufficient to generate persistent and sizeable age effects on the current account. Our results suggest that policies concerning current account balance should take into consideration age distributions and the degree of development.

Keywords: age distribution; home-country bias; saving; investment; current account; OECD

JEL-codes: E20; J10; O57

35 pages, October 20, 1999

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