Is the demographic dividend diminishing in China? Evidence from population aging and economic growth during 1990–2015

Abstract

AbstractThis paper presents new empirical evidence on the effect of population aging on economic growth in China. Aging is widely assumed to impact economic growth by shaping the labor market performance and human capital. Using an interactive fixed effects model and a provincial panel data set during 1990–2015, and also exploiting the predicted province‐by‐year variation in population aging fraction as an instrument, we examine the impact of population aging on the growth rate of gross domestic product (GDP) per capita, labor force ratio, and labor productivity. The results show that a 10% increase in the fraction of the population aged 65+ decreases the growth rate of GDP per capita by approximately 2%. Furthermore, channel decomposition shows that half of the decrease is due to slower growth of the labor force ratio, whereas the rest may be due to slower productivity growth. In addition, the negative effect of aging on GDP growth is more substantial after the year 2000, and the effect of aging on the labor force ratio and productivity shows different patterns during different periods.