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Intergenerational Transfer, Human Capital and Long-term Growth in China under the One Child Policy

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  • Xi Zhu
  • John Whalley
  • Xiliang Zhao

Abstract

We argue that the demographic changes caused by the one child policy (OCP) may not harm China's long-term growth. This attributes to the higher human capital induced by the intergenerational transfer arrangement under China’s poor-functioning formal social security system. Parents raise their children and depend on them for support when they reach an advanced age. The decrease in the number of children prompted by the OCP resulted in parents investing more in their children’s educations to ensure retirement consumption. In addition, decreased childcare costs strengthen educational investment through an income effect. Using a calibrated model, a benchmark with the OCP is compared to three counterfactual experiments without the OCP. The output under the OCP is expected to be about 4 percent higher than it would be without the OCP in 2025 under moderate estimates. The output gain comes from a greatly increased educational investment driven by fewer children (11.4 years of schooling rather than 8.1). Our model sheds new light on the prospects of China's long-term growth by emphasizing the OCP's growth enhancing role through human capital formation under the intergenerational transfer arrangement.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19160.

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Date of creation: Jun 2013
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Handle: RePEc:nbr:nberwo:19160

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  1. Jacob A. Mincer, 1974. "Age and Experience Profiles of Earnings," NBER Chapters, in: Schooling, Experience, and Earnings, pages 64-82 National Bureau of Economic Research, Inc.
  2. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  3. Yao Amber Li & John Whalley & Shunming Zhang & Xiliang Zhao, 2011. "The Higher Educational Transformation of China and Its Global Implications," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 34(4), pages 516-545, 04.
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  7. Alwyn Young, 2003. "Gold into Base Metals: Productivity Growth in the People's Republic of China during the Reform Period," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(6), pages 1220-1261, December.
  8. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, July.
  9. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 75, pages 352.
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