Dependency Ratio and International Trade

Wei Tian, Peking University
Yang Yao, Peking University
Miaojie Yu, Peking University
Yi Zhou, University of California, Berkeley

Does demographic structure affect trade? On one hand, a low dependency ratio in the exporting country can generate more output and hence export more. On the other hand, a low dependency ratio in the importing country can induce more labor income and hence import more. In this paper, we analyze the effect of demography on trade by augmenting the gravity equation with dependency ratio. Using a rich panel data set for 176 countries from 1970 to 2006 and controlling for multilateral resistance, we fi…nd strong empirical evidence consistent with our theoretical predictions. The fi…nding is robust by econometric methods and by different specifi…cations.