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

19 Pages Posted: 19 Jul 2010  

Rod Tyers

Australian National University (ANU) - School of Economics; University of Western Australia - Department of Economics

Jane Golley

Australian National University (ANU) - Faculty of Economics & Commerce; Australian National University (ANU) - Crawford School of Public Policy

Abstract

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.

Suggested Citation

Tyers, Rod and Golley, Jane, China's Growth to 2030: The Roles of Demographic Change and Financial Reform. Review of Development Economics, Vol. 14, Issue 3, pp. 592-610, August 2010. Available at SSRN: https://ssrn.com/abstract=1643592 or http://dx.doi.org/10.1111/j.1467-9361.2010.00576.x

Rod Tyers (Contact Author)

Australian National University (ANU) - School of Economics ( email )

Arndt Building
Australian National University
Canberra, Australian Capital Territory 0200
Australia
61-6-249-5124 (Fax)

University of Western Australia - Department of Economics ( email )

35 Stirling Highway
Crawley, Western Australia 6009
Australia
61 8 6488 5632 (Phone)

HOME PAGE: http://www.business.uwa.edu.au/school/staff-profiles?type=profile&dn=cn%3DRodney%20Tyers%2Cou%3DEcon

Jane Golley

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

Canberra, Australian Capital Territory 2601
Australia

Australian National University (ANU) - Crawford School of Public Policy

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

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