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4 When Demographic Dividends Disappear: Growth Sustainability in China

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Chapter Summary

This chapter, by estimating the production function to examine the contribution of demographic transition to China's economic growth, reveals the challenges posed by the disappearance of demographic dividends and puts forward policy suggestions regarding how to maintain and accelerate the growth of total factor productivity (TFP) to ensure the sustainable growth of the Chinese economy. To understand the workings of the demographic dividend, it should be put within the framework of the dual economy development and related to the capital accumulation process. The fundamental way to improve labor productivity is to enhance TFP. Improvements in TFP can offset the adverse impact of the diminishing marginal product of capital within labor constraints and it can sustain economic growth in the long run. TFP is composed of resource reallocation efficiency and technical efficiency. The government should properly handle macroeconomic policies to create an environment that allows for creative destruction.

Keywords: China's demographic transition; Chinese economy; demographic dividends; economic growth; total factor productivity (TFP)



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