Macroeconomic Impacts of Global Demographic Change on Australia

The world will experience dramatic demographic change over this century. This paper
examines the impacts of this global demographic change on the Australian economy at
both the aggregate and sectoral levels in a global multi-region and multi-sector general
equilibrium model. Using a detailed structural model, we simulate demographic shocks
of six regions in the world economy as well as Australian own demographic shock to
investigate their impacts on Australian macroeconomic conditions, economic structure
and trade patterns. The results suggest that demographic change in different regions of
the world economy will have different impacts on sectors in Australia depending on trade
patterns between Australia and other regions and also between other regions. The
energy, mining and durable manufacturing sectors in Australia are the most affected.
Demographic change in China, Japan and Korea has significant negative impacts on
Australia, but partly offsetting these shocks are positive demographic shocks from
emerging Asia. The overall impact of the rest of the world on Australian GDP is
quantitatively negligible, but the impacts on the real interest rate and trade balances are
significant. Global demographic change increases Australian real interest rates in the
next two decades on the assumption that emerging countries can access global capital
markets and take advantage of their demographic dividends.