why the aging of the global population, weighted by the amount of assets that residents of various nations hold, rather than the aging of the U.S. population, is most relevant for predicting how aging will affect rates of return. While the committee focuses on the mobile assets case, if asset mobility is limited, then while global population dynamics may affect rates of return, domestic demographic factors may also matter.

Table 8-1 shows the evolution of the U.S. old age dependency ratio, the global old age dependency ratio in which population aggregates are simply added up across nations, and a weighted old age dependency ratio in which each country’s dependency ratio is weighted by its current and projected per capita gross domestic product (GDP) rather than its population in computing the global measure. The committee reports GDP-weighted values because it does not have detailed information on the aggregate asset holdings in each nation. The table shows that the global population today is older on a GDP-weighted basis than on an equal-weighted basis. It also shows that GDP weighting tends to reduce the disparity between the aging of the U.S. and the global population. The per capita GDP-weighted old age dependency ratio for the global economy rises more slowly than that for the United States for the next 20 years, but it catches up in the subsequent two decades.

Each year households decide how much to consume. When consumption exceeds their income, they must draw down savings to finance consumption, and vice versa. Companies decide whether to retain or distribute their earnings and how much to invest; and governments decide whether or not to save by collecting taxes in excess of current spending. Companies that seek resources to deploy plant or equipment in their business or to invest in new technology, households that wish to borrow because their desired consumption exceeds their current income, and governments that issue bonds because their tax revenues fall below their outlays determine the demand for savings.

TABLE 8-1   U.S. and Global Old-Age Dependency Ratios, 2010–2050

Year U.S. Dependency Ratio Global Dependency Ratio (Unweighted) Global Dependency Ratio (Per Capita GDP Weighted)
2010 21.6 13.4 19.5
2020 28.3 16.1 22.7
2030 36.8 20.1 27.5
2040 39.0 24.5 33.9
2050 39.3 28.3 37.8

SOURCE: Donehower and Boe (2012).



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