Can Ageing North Benefit from Expanding Trade with South?

In this paper we estimate the benefit for the ageing North countries of diversifying some of its trade away from the other North countries in favour of the South countries. To this end we use a six-region overlapping generations model that takes into account the demographic trends of the 21st century and trade patterns. We show that ageing Northern countries can benefit from “enriching decay” through significant improvement in the terms of trade. We estimate to what extent the enriching decay can be bolstered if the North expands trade with the South. In Europe, for instance, appropriate trade diversification strategy may prop up Europe’s real per capita consumption by 3%.