Summary/IntroductionThe OECD countries have, during the four last decades experienced, a decline in fertility rates and an increase in life expectancy (UN, 2003). During the next 50 years the ratio of the number of workers to the number of elderly people will decline. The challenge is to meet the consumption needs. Many economists argue that a reformation of the present pension schemes is needed, and a transformation from the commonly used pay-as-you-go1 (paygo) schemes to funding has been promoted, e.g. Modigliani et al (2000). Poor countries have had a different demographic development, where many of them havehigh population growth rates that will result in much larger ratios of potential workers to the elderly than the OECD countries. There is also less capital equipment in poor countries than in the industrialized countries, which, in combination with the different demographic development, gives lower capital/labour ratios in poor countries.This thesis discusses whether these differences between countries could cause interaction leading to a ‘win-win’ situation2. The interaction could be trade or factor movements, orboth. The theoretical starting point for the discussion will be the neoclassical framework, which predicts gains from interactions between countries with different factor endowments. The simplest neoclassical3 production function with only two inputs, capital and labour, predicts that the return to capital will be higher in relative capital scarce countries than in capital rich ones. If this is true, one should observe a higher return to capital in poor than inrich countries. When capital is assumed to be mobile between countries, this could result in capital movements from rich to poor countries. Although many barriers of capital movements have been removed, these movements are not observed. This is sometimesreferred to as the Lucas’ paradox, after the Chicago school economist Robert E. Lucas. In chapter 3 of this thesis this paradox is discussed within the Heckscher-Ohlin-Samuelson framework. It is concluded that a reformulation of the paradox may be necessary in asituation where labour intensive goods is less tradable than capital intensive goods. The possibility that labour intensive goods tend to be less tradable than capital-intensive goods should be added to the discussion of the Lucas’ paradox. There is a debate on which pension system will be best suited given the demographic changes described above. In chapter 2 an introduction to relevant parts of the debate is given. In addition to providing the introduction to the discussion, this paper to a limited extent provides input to the debate itself. Chapter 2 also gives a description of the demographics inthe OECD and the Norwegian Government Petroleum Fund.Chapter 4 discusses saving for future consumption through foreign investment. As Norway has already invested parts of the petroleum income in foreign countries to cater forfuture consumption needs, the country provides an interesting case for the pension debate. The focus will be on whether or not non-traded goods can become traded, if money is spent to break down barriers to trade. This provides the rationale for using the general discussion of capital investments for future consumption to discuss the investments done by Norwegian authorities, when investing some of the oil revenues in a fund for future consumption. The fund in question is The Norwegian Government Petroleum Fund (PF), and is, with only few, small exceptions, invested in other OECD countries. This is called a world market portfolio investment, although not all markets in the world are invested in. The discussion will raisethe question whether the PF should be invested in a world market portfolio, which is done today, or invested to break down barriers to trade in labour intensive goods from a poor country.The consequences of the investment of the fund in the rich and the poor country will be discussed using the same neoclassical framework as in chapter 3. Two questions will be important in the discussion of whether or not the PF should be invested in the OECD countries:1) Will the coming transformation of the pension schemes in OECD countries lead tolower rents on capital investments?2) Can the PF be transformed into goods that fit the future consumption needs of anaging population?