Friday 30 July 2010

China's Growth to 2030: The Roles of Demographic Change and Financial Reform

This paper is worth a quick glance. What is interesting is the acknowledgement that China's population is not growing so quickly or will even start to contract. I am not convinced that this is true.

China's Growth to 2030: The Roles of Demographic Change and Financial Reform

Rod Tyers
Australian National University (ANU) - School of Economics

Jane Golley
Australian National University (ANU) - Faculty of Economics & Commerce

Review of Development Economics, Vol. 14, Issue 3, pp. 592-610, August 2010

China's economic growth has, hitherto, depended on its relative abundance of production labor and its increasingly secure investment environment. Within the next decade, however, China's labor force will begin to contract. This will set its economy apart from other developing Asian countries where relative labor abundance will increase, as will relative capital returns. Unless there is a substantial change in population policy, the retention of China's large share of global FDI will require further improvements in its investment environment. These linkages are explored using a global economic model that incorporates full demographic behavior. Financial reform is measured by the effect of declining intermediation costs on the wedge between home and foreign borrowing rates, or the “investment premium.” The influence of this wedge on China's projected economic growth performance is investigated under alternative assumptions about fertility decline and labor force growth. China's share of global investment is found to depend sensitively on both its demography and its interest premium, though the results suggest that a feasible continuation of financial reforms will be sufficient to compensate for a slowdown and decline in its labor force.


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