| Abstract | The empirical studies show that the age structure have impacted on the real exchange rate, and the increase of ratio that non-working age people to the working age population is associated with the increase of real exchange rate. The mechanisms that age structure influences real exchange rate are based on the model that Balassa and Samuelson built.The model assumes that the marginal production cost of nontradebles in two countries are equal, and equal to the international price(Balassa,1964). However, the marginal production cost of nontradebles are not equal. For example, the marginal production cost of manufacturing in the developed countries are not equal the marginal production cost in the developing countries.
The transportation cost of different goods in the international is different, and the difference of different goods’ average production cost between any two countries is different. When the absolute value of product’s average production cost’s difference is greater than the transportation cost in the international, the product will become nontradebles; if not, the product will become tradebles. Therefore, one product whether is tradebles is not constant.
In order to analyze the mechanism that age structure influence on the real exchange rate, this paper built a theoretical model including transporting cost and un-arbitrage equilibrium. The model finds that the ratio’s raise of non-working age population will lead to the raise of net experts. Because of the limitation of consumer preferences, the increase of the import conduct’s kinds and the decrease of the export conduct’s kinds will accompany with the raise of net experts. When the productivity is unchanged, the increase of the import conduct’s kinds and the decrease of the export conduct’s kinds can infer the price of productive factor rise, the general price level rise, and the real exchange rate revalue. And the increase of total natural resources rents, the increase of general government final consumption expenditure and the decrease of gross capital formation will also lead the real exchange rate’s up-valuation through the same mechanism.
Finally, this paper examines the theoretical result using the data from 214 countries or regions from 1980 to 2015. The results showed that the ratio’s increase of 0~14 years old population to 15~64 years old population, the ratio’s increase of 65 years old and above population , the ratio’s increase of total natural resources rents to Gross Domestic Product(GDP), the ratio’s increase of general government final consumption expenditure to GDP and the ratio’s decrease of gross capital formation to GDP all will lead real exchange rate’s up-valuation, the empirical results fully meets the theories’ anticipation. In order to test the reliability of the conclusion, we also do the robustness test, with social total dependency ratio to replace children’s dependency ratio and elderly dependency ratio, with relative to the dollar’s real exchange rate to replace the real effective exchange rate and with gross fixed capital formation to replace gross capital formation. The results also meet the theories’ anticipation.
All in all, the empirical test results all meet the theories’ anticipation, which consider that any factor which cause import categories’ increase and export categories’ decrease(including the change of age structure) will all result in the real exchange rate’s up-valuation.
This paper first from the view of transportation cost explain the mechanism that how age structure impact the real exchange rate, and provides a new view of analysis about the influence mechanism of the real exchange rate’s long-term trend.
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