Demographics and FDI: Lessons from China's one-child policy

Arbeitspapier

Following the introduction of the one-child policy in China, the capital-labor (K/L) ratio of China increased relative to that of India, and, simultaneously, FDI inflows relative to GDP for China versus India declined. These observations are explained in the context of a simple neoclassical OLG paradigm. The adjustment mechanism works as follows: the reduction in the growth rate of the (urban) labor force due to the one-child policy permanently increases the capital per worker inherited from the previous generation. The resulting increase in China's (domestic K)/L thus "crowds out" the need for FDI in China relative to India. Our paper is a contribution to the nascent literature exploring demographic transitions and their effects on FDI flows.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper Series ; No. 613

Classification and Topics

• Classification: Wirtschaft ; Neoclassical Models of Trade ; International Investment; Long-term Capital Movements ; Demographic Trends, Macroeconomic Effects, and Forecasts ; Macroeconomic Analyses of Economic Development ; General Aggregative Models: Neoclassical
• Subject: Lucas paradox ; capital-labor ratio ; FDI-intensity ; one-child policy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Donaldson, John B. ; Koulovatianos, Christos ; Li, Jian ; Mehra, Rajnish
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/187488
• URN: urn:nbn:de:hebis:30:3-480187
• Last update: 10.03.2025, 11:41 AM CET