China’s Economic Growth and Demographic Structure Essay

Wei and Hao (2010) argue that changes in demographic structure have helped fuel China’s economic growth since 1989. Demographic structure is described as the age distribution of a population (Wei & Hao, 2010) and is usually measured by the total dependence ratio, which is the ratio of the total number of the dependent population to that of the working-age population. The economic growth refers to the income growth in China, measured by China’s per capita GDP. 2. The relation between China’s economic growth and demographic structure Changes in demographic structure affected the economic growth in China, mostly in the long run (Wei & Hao, 2010). The decline in the dependency ratio accounted for about one-sixth of the provincial growth rate of GDP per capita in 1989-2004 (Wei & Hao, 2010). Declining dependency rates imply that the working-age population is growing more rapidly than the population as a whole which will lead to more rapid growth of per capita GDP for any given increase in productivity per worker (Naughton, 2007). In other words, there are more productive workers with valuable human capital. Particularly the lower youth dependency ratio, due to the increasing levels of education and government policies like the ‘one child’ policy, influenced the income growth in China. Furthermore, the launch of the market reform is found to have greatly improved the efficiency of the labor and capital markets (Wei & Hao, 2010) and thereby influence d the economic growth. Wei and Hao (2010) explain this by the effect of market reforms, which improved the flexibility of the labor market and the capital market and turned the expanded working-age population to employment and translated accumulated savings into productive investment. Another aspect argued by Naughton (2007) is the transforming of China from predominantly low skill, hard physical labor to a middle-income economy where education and skill begin to transform the nature of work for many workers. Wei and Hao (2010) also suggest that economic growth has helped to lower birth rates, delay women’s mean age at the first marriage and extend life expectancy. Due to Wei and Hao (2010) there is a reverse causality between demographic structure and economic growth. 3. Impact of the One-Child Policy According to Wei and Hao (2010) and Naughton (2007) the One-Child Policy has had important impacts on China’s economic development but they also argue that it may need to be reconsidered. They argue that China is transitioning to an ageing society and if the one-child policy were to be relaxed, they expect birth rates to rise modestly and the rapid trend towards ageing would be ameliorated to some extent. In my opinion it is risky to change the one -child policy because I expect a fluctuating dependency ratio with periods of economic growth varied by periods with economic decline, because of the fluctuating working-age group. I think China needs to cope with one period with a high elderly dependency ratio to reach a long period with a more stable total dependency ratio. In other words, I think it is necessary to prevent periods varying from a high birth rate (allowed by the government) to a low birth rate (with policies to prevent the population to grow). – Wei, Z. & Hao, R. (2010). Demographic structure and economic growth: Evidence from China. Journal of Comparative Economics, 38, 472-491. – Naughton, B. (2007). The Chinese economy: Transition and growth. Cambrigde MA: The MIT Press.