| China's planned birth policy is based on "population pessimism", which states population growth affects the income level negatively, though the role of population growth in cross-country growth regressions is ambiguous. There are "population pessimism", "population optimism", and "population neutralism". Also, a new concept "demographic dividend" was raised in recent years, which states a rise in the rate of economic growth can be induced because of a rising share of working age people in a population while still holding "population neutralism". The planned birth policy results in a decreasing fertility rate, which slows down the population growth and changes the age structure of population. In this paper whether population pessimism holds and whether China grasps "demographic dividend" are tested. An overlapping generation (OLG) model is developed to introduce the dependency ratio into the growth regression. The claim of demographic dividend and the role of population growth are first examined in the cross-country data and sensitivity analyses are followed for the robustness test. Throughout the sensitivity analyses, dependency ratio is proved to be robust in cross-country growth regressions while still holding "population neutralism". Later, using the provincial level data of China the case study on China's planned birth policy is conducted where two instrumental variables, sex ratio at birth and minority proportion, are introduced to handle the endogeneity problems and policy suggestions based on the predicted China's demographic structure are provided. |
