Demographic Aging, Industrial Policy, and Chinese Economic Growth

Michael Dotsey, Wenli Li and Fang Yang

No 19-21, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: We examine the role of demographics and changing industrial policies in ac- counting for the rapid rise in household savings and in per capita output growth in China since the mid-1970s. The demographic changes come from reductions in the fertility rate and increases in the life expectancy, while the industrial policies take many forms. These policies cause important structural changes; first benefiting private labor-intensive firms by incentivizing them to increase their share of employment, and later on benefiting capital-intensive firms resulting in an increasing share of capital devoted to heavy industries. We conduct our analysis in a general equilibrium economy that also features endogenous human capital investment. We calibrate the model to match key economic variables of the Chinese economy and show that demographic changes and industrial policies both contributed to in- creases in savings and output growth but with differing intensities and at different horizons. We further demonstrate the importance of endogenous human capital investment in accounting for the economic growth in China.

Keywords: Aging; Credit policy; Household saving; Output growth; China (search for similar items in EconPapers)
JEL-codes: E21 J11 J13 L52 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2019-03-21
New Economics Papers: this item is included in nep-age, nep-cna, nep-dge and nep-mac
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Citations: View citations in EconPapers (1)

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Working Paper: Demographic Aging, Industrial Policy, and Chinese Economic Growth (2019)
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DOI: 10.21799/frbp.wp.2019.21

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