Demographic Dividend: Demographic Dividend: Supply-side View and Supply-side View and

Evidence on Chinese GrowthEvidence on Chinese Growth

CAI FangCAI Fang

Chinese Academy of Social SciencesChinese Academy of Social Sciences

1. Fast Growth alongside Rapid 1. Fast Growth alongside Rapid

Demographic TransitionDemographic Transition

Very Low Fertility for Many YearsVery Low Fertility for Many Years(and two features)(and two features)

0

1

2

3

4

5

6

7

8

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

TFR

Nati onal Urban Rural

Age Structure Changes Faster Age Structure Changes Faster

(WAP rise & dependence decline)(WAP rise & dependence decline)

12 10 8 6 4 2 0 2 4 6 8 10 12

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

2000

PRC Less devel oped regi ons

12 10 8 6 4 2 0 2 4 6 8 10 12

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

2010

PRC Less devel oped regi ons

Decomposing China’s GrowthDecomposing China’s Growth(preventing diminishing return on (preventing diminishing return on KK))

Resi dual16%

Capi tal61%

Labor9%

Educati on6%

TFP24%

Real l ocati on8%

High Potential + Strong DemandHigh Potential + Strong Demand= Fast Actual Growth= Fast Actual Growth

0

2

4

6

8

10

12

14

16

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

GDP

grow

th r

ate

(%)

Actual Potent i al Average

2. Disappearance of 2. Disappearance of

Demographic DividendDemographic Dividend

Reversed Demographic FactorsReversed Demographic Factors(WAP shrinks & dependence rises)(WAP shrinks & dependence rises)

Working agepopulation

Dependence ratio

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

2042

2044

2046

2048

2050

Wor

king

age

pop

ulat

ion

(10

thou

sand

)

0

10

20

30

40

50

60

70

80

90

100

Dep

ende

nce

ratio

(%

)

As Result, One, Return on As Result, One, Return on KK Decreases, Decreases, Estimated by Various StudiesEstimated by Various Studies

0. 10

0. 15

0. 20

0. 25

0. 30

0. 35

0. 40

0. 45

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

Guo Bai MPK( )变 MPK(0. 55) Gong

Two, L Becomes Scarce and Wage of Unskilled Workers Increase

0

500

1000

1500

2000

2500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Years

Mo

nth

ly w

ages

(yua

n)

0

10

20

30

40

50

60

70

80

Dai

ly w

ages

(yua

n)

Mi grants Manuf actur i ng Const ruct i on

Grai ns Cot ton Pi g f arm

Three, Room for Reallocation Three, Room for Reallocation Efficiency (TFP) Becomes SmallerEfficiency (TFP) Becomes Smaller

Agri cul tural

Non-agr i cul tural

0

100

200

300

400

500

600

700

800

900

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Labo

r fo

rce

(mil

.)

Finally, Potential Growth Rate Slows Finally, Potential Growth Rate Slows Down and Slowdown Will ContinueDown and Slowdown Will Continue

6. 27. 6

10. 3

0

2

4

6

8

10

12

14

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Annu

al p

oten

tial

gro

wth

rate

(%)

Peri od Annual

3. From Demographic Dividend 3. From Demographic Dividend

To Reform DividendTo Reform Dividend

Since It Is Supply-side Factors Cause Since It Is Supply-side Factors Cause Slowdown, PGR Can Be IncreasedSlowdown, PGR Can Be Increased

3. 0

3. 2

3. 4

3. 6

3. 8

4. 0

4. 2

4. 4

4. 6

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Reve

aled

com

para

tive

adv

anta

ge i

ndex

By Reforms to Increase Labor Supply, By Reforms to Increase Labor Supply,

Human Capital, TFP, & Hopefully TFR Human Capital, TFP, & Hopefully TFR

0

10

20

30

40

50

60

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Popu

lati

on s

hare

(%)

Havi ng urban resi dence Li vi ng i n ci ti es

Future Scenarios of Potential Growth Future Scenarios of Potential Growth Rates under Dif. AssumptionsRates under Dif. Assumptions

3

4

5

6

7

8

9

10

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

Years

Pote

ntia

l gr

owth

rat

e (%

)

Basel i ne Scenar i o A Scenar i o B Scenar i o C

Thank You!Thank You!