Population Aging, Saving Rate and Long-term Economic Growth in China: Based on Dynamic CGE Model

Yanjun Liu, Hao Xiao and Shujin Zhu

No 332313, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Based on China's dynamic computable general equilibrium model (MCHUGE) with endogenous saving rate, the paper analyses and quantifies the impact of population aging in the next four decades on China's macro-economic growth and structural adjustment from the perspective of consumption and investment. This paper firstly studies demographic effects on household saving rates by using econometrical anlysis. The paper also constructs a dynamic CGE model which contains endogenous saving rates and flexible closures according to different saving-investment decision theory. More importantly, the model characterizes the impact of aging on economic growth by influencing saving ,capital formation and investment instead of choosing other channels, such as consumption mechanism and labor supply mechanism in the previous researches. The simulation results shows that the negative effects of the aging of the population which do not appear in the short-term due to the positive pull of the consumption mainly come from the long-term pressure; funding gap caused by labor supply decline and the dropping saving rate in the long-term, are bound to reduce levels of potential economic growth. Secondly, Economic structure has shifted passively towards demand-oriented and service-based economy, and the pulling effect of export and investment are supposed to face challenges. Meanwhile, financial reforms are supposed to further deepen the impact of aging population on China's long-term economic growth along the future investment path.

Keywords: Public Economics; Labor and Human Capital (search for similar items in EconPapers)
Pages: 21
Date: 2013
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