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Federal Reserve Bank of Philadelphia
Working Papers
Demographic Aging, Industrial Policy, and Chinese Economic Growth
Michael Dotsey
Wenli Li
Fang Yang
Abstract

We examine the role of demographics and changing industrial policies in ac- counting for the rapid rise in household savings and in per capita output growth in China since the mid-1970s. The demographic changes come from reductions in the fertility rate and increases in the life expectancy, while the industrial policies take many forms. These policies cause important structural changes; first benefiting private labor-intensive firms by incentivizing them to increase their share of employment, and later on benefiting capital-intensive firms resulting in an increasing share of capital devoted to heavy industries. We conduct our analysis in a general equilibrium economy that also features endogenous human capital investment. We calibrate the model to match key economic variables of the Chinese economy and show that demographic changes and industrial policies both contributed to in- creases in savings and output growth but with differing intensities and at different horizons. We further demonstrate the importance of endogenous human capital investment in accounting for the economic growth in China.


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Michael Dotsey & Wenli Li & Fang Yang, Demographic Aging, Industrial Policy, and Chinese Economic Growth, Federal Reserve Bank of Philadelphia, Working Papers 19-21, 21 Mar 2019.
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Subject headings:
Keywords: Aging; Credit policy; Household saving; Output growth; China
DOI: 10.21799/frbp.wp.2019.21
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