We verify that fluctuations in international capital flows and stocks are persistent and consider a role for demography. In an overlapping generations model with uncertain lifetimes, we explore the impact of increases in life expectancy caused by decreases in adult mortality. Reductions in mortality affect the aggregate accumulation of assets in two ways: by changing household saving behavior and by changing the age distribution of the population. In an open economy, demographic differences across countries can produce large persistent capital flows, even if the countries are otherwise similar. We use a quantitative version of the model to illustrate the impact of demography on capital flows and net foreign assets in China, Germany, Japan, and the United States. JEL Classification Codes: F21, J11.

With US trade and current account deficits approaching 6% of GDP, some have argued that the country is "on the comfortable path to ruin" and that the required "adjustment'' may be painful. We suggest instead that things are fine: although national saving is low, the ratios of household and consolidated net worth to GDP remain high. In our view, the most striking features of the world at present are the low rates of investment and growth in some of the richest countries, whose surpluses account for about half of the US deficit. The result is that financial capital is flowing out of countries with low investment and growth and into the US and other fast-growing countries. Oil exporters account for much of the rest.

We use macroeconomic data to build a panel of international capital returns over a long horizon across both developed and developing countries. We document two facts: poor and emerging markets exhibit (1) high average returns to capital and (2) high betas on US returns. We quantitatively explore whether consumption-based risk faced by a US investor can reconcile these patterns. Long-run risks lead to return disparities at least 55% as large as those in the data. Fact (2), although not a sufficient statistic, is informative about the extent of long-run risk in foreign capital, and so about fact (1).

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