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Intergenerational transfer, human capital and long-term growth in China under the one child policy

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  • Zhu, Xi
  • Whalley, John
  • Zhao, Xiliang

Abstract

We suggest that the demographic changes caused by the one child policy (OCP) may not harm China's long-term growth. This is because of the higher human capital accumulation induced by the intergenerational transfer arrangements 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. A decrease in the number of children prompted by the OCP results in parents investing more in their children's education 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. Output in 2025 without OCP decreases about 4% under moderate estimates. The output gain comes from a greatly increased educational investment driven by fewer children (11.4years 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 intergenerational transfer arrangements.

Suggested Citation

  • Zhu, Xi & Whalley, John & Zhao, Xiliang, 2014. "Intergenerational transfer, human capital and long-term growth in China under the one child policy," Economic Modelling, Elsevier, vol. 40(C), pages 275-283.
  • Handle: RePEc:eee:ecmode:v:40:y:2014:i:c:p:275-283
    DOI: 10.1016/j.econmod.2014.04.015
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    2. Jing You & Xinxin Ding & Miguel Niño-Zarazúa & Sangui Wang, 2015. "Lofty pine and clinging vine: The educational 'Great Gatsby Curve' and the role of house prices," WIDER Working Paper Series wp-2015-147, World Institute for Development Economic Research (UNU-WIDER).
    3. Chen, Yang & Fang, Zheng, 2018. "Industrial electricity consumption, human capital investment and economic growth in Chinese cities," Economic Modelling, Elsevier, vol. 69(C), pages 205-219.
    4. Zheng Shen & James Yang, 2021. "A Simulation Study of the Effect of Delayed Retirement on Welfare of the Elderly: Evidence from China," SAGE Open, , vol. 11(2), pages 21582440211, June.
    5. Mishra, Vinod & Smyth, Russell, 2015. "Estimating returns to schooling in urban China using conventional and heteroskedasticity-based instruments," Economic Modelling, Elsevier, vol. 47(C), pages 166-173.
    6. Pei, Yaolin & Cong, Zhen & Wu, Bei, 2020. "Education, adult children's education, and depressive symptoms among older adults in rural China," Social Science & Medicine, Elsevier, vol. 253(C).
    7. Gamlath, Sharmila & Lahiri, Radhika, 2018. "Public and private education expenditures, variable elasticity of substitution and economic growth," Economic Modelling, Elsevier, vol. 70(C), pages 1-14.
    8. YIN Ting & ZHANG Junchao, 2017. "More Schooling, More Generous? Estimating the effect of education on intergenerational transfers," Discussion papers 17074, Research Institute of Economy, Trade and Industry (RIETI).
    9. Jing You & Xinxin Ding & Miguel Niño-Zarazúa & Sangui Wang, 2015. "Lofty pine and clinging vine: The educational ‘Great Gatsby Curve’ and the role of house prices," WIDER Working Paper Series 147, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    Intergenerational transfer; Human capital; Growth; Demographic transition;
    All these keywords.

    JEL classification:

    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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