Jianpo Xue (Renmin University of China): One-child policy in China: a unified growth analysis

Jianpo Xue (Renmin University of China): One-child policy in China: a unified growth analysis

Co-author: Chong-Kee Yip (The Chinese University of Hong Kong)

Abstract

This paper examines the effects of China's One Child Policy (OCP) in a stylized unified growth model where demographic change plays a central role. Following Galor and Weil (American Economic Review 2000), the theoretical analysis shows that parents invest in the education of their children immediately after the OCP intervention. This increases the education level and increases the rates of both technological progress and economic growth in the short run. However, the low population mass resulting from the OCP hampers the natural economic evolution. This lowers education and reduces technology growth, retarding economic growth in the steady state. We calibrate the model using China's data and find that a permanent OCP accelerates growth up to 60% in the short run (for more than two generations or forty years) but retards it in the long run to 6.95% (from 8.94% of natural evolution). If the OCP is temporary and is lifted after two generations, then growth falls immediately by about 27% but will recover to the steady state under natural evolution. Although the OCP reduces welfare, the welfare loss from the temporary OCP is smaller than that from the permanent OCP. As a result, the recent termination of the OCP in China improves growth and welfare in the long run.

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