Demographics and FDI: Lessons from China's one-child policy

John B. Donaldson, Christos Koulovatianos, Jian Li () and Rajnish Mehra

No 613, CFS Working Paper Series from Center for Financial Studies (CFS)

Abstract: Following the introduction of the one-child policy in China, the capital-labor (K/L) ratio of China increased relative to that of India, and, simultaneously, FDI inflows relative to GDP for China versus India declined. These observations are explained in the context of a simple neoclassical OLG paradigm. The adjustment mechanism works as follows: the reduction in the growth rate of the (urban) labor force due to the one-child policy permanently increases the capital per worker inherited from the previous generation. The resulting increase in China's (domestic K)/L thus "crowds out" the need for FDI in China relative to India. Our paper is a contribution to the nascent literature exploring demographic transitions and their effects on FDI flows.

Keywords: Lucas paradox; capital-labor ratio; FDI-intensity; one-child policy (search for similar items in EconPapers)
JEL-codes: E13 F11 F21 J11 O11 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cna, nep-lab, nep-mac and nep-tra
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Related works:
Journal Article: Demographics and FDI: lessons from China’s one-child policy (2025)
Working Paper: Demographics and FDI: Lessons from China's One-Child Policy (2018)
Working Paper: Demographics and FDI: Lessons from China’s One-Child Policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:613

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