Demographic change and long‐term growth in China: Past developments and the future challenge of aging

Minchung Hsu, Pei-Ju Liao () and Min Zhao

Review of Development Economics, 2018, vol. 22, issue 3, 928-952

Abstract: This paper explores the influence of demographic changes, particularly the sharp decline in fertility and the evolution of the population age structure, on economic development in China. A general equilibrium overlapping generations model with endogenous decisions on fertility, educational investment, and factor accumulation is employed for our analysis. The family support provided by children to the elderly, which is a component of traditional culture in Chinese society, is also considered. We find that technological changes matter most for growth. Demographic changes, on average, account for approximately 4% of the growth in China, while the effect is negative in the pre‐1980 period. With an extension to include population aging, we find that aging is not necessarily adverse to growth. This finding reflects the fact that a longer life expectancy requires more savings and makes educational investment in children more attractive, which accelerates physical capital and human capital accumulation. However, if the social norm of family support for aging parents is strict, aging will significantly increase the children's burden and crowd out physical and human capital accumulation.

Date: 2018
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