Demographic Aging, Industrial Policy, and Chinese Economic Growth

45 Pages Posted: 26 Apr 2019

See all articles by Michael Dotsey

Michael Dotsey

Federal Reserve Bank of Philadelphia

Wenli Li

Federal Reserve Bank of Philadelphia

Fang Yang

Louisiana State University, Baton Rouge

Date Written: 2019-03-21

Abstract

We examine the role of demographics and changing industrial policies in ac- counting for the rapid rise in household savings and in per capita output growth in China since the mid-1970s. The demographic changes come from reductions in the fertility rate and increases in the life expectancy, while the industrial policies take many forms. These policies cause important structural changes; first benefiting private labor-intensive firms by incentivizing them to increase their share of employment, and later on benefiting capital-intensive firms resulting in an increasing share of capital devoted to heavy industries. We conduct our analysis in a general equilibrium economy that also features endogenous human capital investment. We calibrate the model to match key economic variables of the Chinese economy and show that demographic changes and industrial policies both contributed to in- creases in savings and output growth but with differing intensities and at different horizons. We further demonstrate the importance of endogenous human capital investment in accounting for the economic growth in China.

Keywords: Aging, Credit policy, Household saving, Output growth, China

JEL Classification: E21, J11, J13, L52

Suggested Citation

Dotsey, Michael and Li, Wenli and Yang, Fang, Demographic Aging, Industrial Policy, and Chinese Economic Growth (2019-03-21). FRB of Philadelphia Working Paper No. 19-21. Available at SSRN: https://ssrn.com/abstract=3378115 or http://dx.doi.org/10.21799/frbp.wp.2019.21

Michael Dotsey (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
804-697-8201 (Phone)
804-697-8255 (Fax)

Wenli Li

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Fang Yang

Louisiana State University, Baton Rouge ( email )

Baton Rouge, LA 70803
United States

HOME PAGE: http://faculty.bus.lsu.edu/fyang/

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