China’s economic growth has, hitherto, depended on its relative abundance of production labour and its increasingly secure investment environment. Within the next decade, however, China's labour force will begin to contract. This will set its economy apart from other developing Asian countries where relative labour 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, in its factor productivity and/or in its labour force participation rates. The links between demographic change, labour participation rates and growth performance are explored here using a new global demographic model that is integrated with an adaptation of the GTAP-Dynamic global economic model in which regional households are disaggregated by age and gender. China’s share of global investment, and hence its growth rate in per capita terms, is found to depend sensitively on its labour force growth and this, in turn, depends on both fertility and labour force participation. Rates of aged participation are low in China but likely to increase and this could offset the growth-retarding effects of fertility decline and ageing.
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Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANUCBE School of Economics Working Papers with number
2006-467.
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Find related papers by JEL classification: C68 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computable General Equilibrium Models E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
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