Population Control Policies and Human Capital Investment: China's One-Child Policy Revisited

Abstract

This paper re-examines the issue of whether population control policies induce more human capital investment per child. It is widely believed that China’s one-child policy promotes the human capital level of the new generation. According to the quantity-quality tradeoff theory, there is a tradeoff between the number of children and child quality; thus a reduction in fertility would contribute to Chinese human capital enhancement. However, the quantity-quality tradeoff may be not the whole story, because another crucial factor relates to which segment of the population is reduced. China’s one-child policy is more strict in urban areas than in rural areas, where human capital investment in children is much lower; thus, it might induce a rural birth rate that is much higher than the urban one, which would have a negative effect on human capital. In our paper, we first define and stress the importance of the population structural change effect on human capital investment. We construct a theoretical model and discover the mathematical formula of the population structural change effect and quantity-quality tradeoff effect together, which are similar to the income effect and substitution effect in microeconomic theory. Then we empirically prove that China’s one-child policy induced a much higher rural birth rate, implying a negative population structural change effect that might offset the potentially positive quantity-quality tradeoff effect on human capital. Finally, we further investigate the relative sizes of the two effects and find it is very likely that China’s one-child policy reduced the human capital level of the new generation.