The effect of population aging on China’s economic growth

左亞蒙

（東南大學蘇州研究院 江蘇 蘇州 215100）

Abstract：Currently， most？of？the？developed countries？and some developing countries in the world are already facing population aging problem. However， China's productive forces are not developed enough and the level of socio-economic development is still relatively low. The government should pay attention to the problem of aging population and take effective measures to cope with it. This paper firstly points out the characteristics of population aging in China and its impact on Chinas economic development on the basis of historical research， then studies the relationship between aging population and Chinas economic growth by regression analysis with national bureau of statistics data from 1994-2014. Regression results show that population aging has a bad effect on Chinas economic growth. At the end of this paper， relevant suggestions are put forward on the aging problems.

Key words： population aging， economic effect， regression analysis

1. Introduction

According to the United Nations report， population aging refers to a phenomenon that in a country， if the elderly population aged 60 and above reaches 10% of the total population or 65 years old occupies 7% of the total population. In the 1970s， China had conducted family planning policy and reforming and opening policy. The family planning policy declined fertility rate dramatically. Reforming and opening policy accelerated the development of Chinas economy and enhanced the domestic medical level and prolonged the life span of people. After that， China accomplished a population transition from “high birth rate， high mortality rate and high growth rate” to “low birth rate， low mortality rate and low growth rate” in a short time， which led to population aging in China.

Population aging will inevitably have a profound effect on Chinas economic growth. Zuo and Yang （2009） propose five points about the impacts of population aging. Firstly， population aging will affect labor supply and demand. Secondly， if population aging continues increasing， the public and private savings rate will be negative influenced. Thirdly， when population aging occurs， the financial sustainability of the social security system will be confronted with greater challenges. Fourthly， population aging will reduce the rural-born young peoples willingness of migration and will put off Chinas urbanization. Finally， as the population bonus will disappear in the future， Chinas comparative advantage in global markets will be restructured and Chinas industry structure will be transformed. According to Hong and Gao （2012）， with the decreasing of birth rate， the reduction of working population and the expansion of aging population， social economic burden increases and it will have a bad effect on Chinas economic growth which can be manifested from following aspects： firstly， demographic bonus disappears and labor supply will be insufficient. Secondly， the current social security system in China will be hard to deal with the pressure of population aging. Thirdly， population aging restrains the consumption ability of working population. Fourthly， population aging reduces the consumption level of the whole society.

According to these historical researches， it turns out that current studies mainly focus on the theoretical analysis and descriptive analysis and very little empirical evidence is used for supporting those ideas. Therefore， this paper tried to utilize regression analysis to prove the effects of population aging on China's economic growth.

2. Empirical research and results

There are many factors which can be used to measure the relationship between aging population and the economic development. Among these factors， dependency ratio is a crucial factor. Dependency ratio reflects the burden of labor force in a country or a place. High dependency ratio indicates that a large burden of labor， while education， health and the social safeguards and other spending increases， which will hinder economic growth. Dependency ratio is made up of old-aged dependency ratio and young dependency ratio. Young dependency ratio reflects the future labor supply situation and its impact on economic growth is uncertain. If population base is large and fertility rate is too high， it will lead to excessive burden on the working population and bring the surplus of productivity， which is not conducive to economic growth. However， if there are labor shortages， the growing young dependency ratio will alleviate this problem in the long term which promotes economic growth. On the other hand， if old-aged dependency ratio continued to rise in the long run ， it will inevitably lead to the aging of the overall labor market and will also bring labor supply shortages.Therefore， we speculate that China's aging condition for economic growth through the following results of empirical research.

According to the cobb-douglas production function： Y= A*K^α*L^ （1-α）， [1]where Y represents output， K is capital， A is total？factor？productivity and L represents the impact of labor factor on production during production process， including unemployment rate unem， old-aged dependency ratio odr， young dependency ratio ydr. It can be regarded as： L=f （unem， odr， ydr， …） [2]. Then take [2] into [1] and take logarithm on [1] both sides， get the regression equation： Ln（Yt） = α+ β1ln（unem） + β2ln（odr） + β3ln（ydr） + ε.

In this paper， the data is obtained from national bureau of statistics of China from 1994 to 2004. But due to lack of data， some factors such as the level of education should be given up.

Table 1： Results

From table one， there are three factors： old-aged dependency ratio， young dependency ratio and unemployment rate. According to the regression analysis， it shows a negative relation between old-aged dependency ratio and gross domestic product which stands for the？level of economic development. In recent years， it has been reported that China's working-age population has declined for three consecutive years. China's demographic dividend gradually disappears which brings Chinas economic slowdown. In addition， it also shows a negative relation between young dependency ratio and gross domestic product. Our country population base is large， so the children's dependency ratio will hinder the growth of per capita income growth. In a word， growth of population dependency ratio has a significantly negative effect on economic growth， which indicates that population aging has a bad effect on Chinas economic growth.

There is a positive relation between unemployment rate and gross domestic product which is contrary to okun's law. This is only a temporary phenomenon. When natural rate of unemployment rise rapidly， it is inevitable that increasing actual unemployment rate synchronize with economic growth. In the long term， when the natural rate of unemployment is roughly stable， under the action of cyclical unemployment， the actual unemployment rate and economic growth is inversely changes.

3. Discussion

In this paper， the research results show that the dependency ratio of population growth has significantly negative effects which indicates that population aging has a bad effect on Chinas economic growth. China's demographic dividend gradually disappears and old-aged dependency ratio has a negative correlation to？economic growth. Therefore， the government should pay more attention to population aging problem and take the effective measures to solve it. There are some suggestions：

（1）Deepen reform of the pension system. China should explore to establish a fund system of the old-age insurance system which has investment effect and saving effect for the long-term economic growth.

（2）Adjust the industrial structure and actively develop aging industry. Under the guidance of market， social resources will continue to shift to a variety of services for the elderly， such as the elderly need catering and health care， which make the new change of the industrial structure. Therefore， Government may formulate preferential policies to encourage social organizations， private non-enterprise units and private enterprises to invest on aging industry.

（3）Maintain the stability of economic growth. The key to solving China's "old before getting rich" issue is to maintain steady economic growth. Before the arrival of the peak of aging population， stable economic development can minimum negative effects of population aging on economic growth which can allow older people to enjoy more national welfare. Only when economy develop， the orderlys medical care， pension and health care can be guaranteed.

（4）Improve the quality of the population. The Government should encourage enterprises to increase automation equipment to improve labor productivity and continue to increase investment in education and meet the demand for skilled labor， and thus compensate for the lack of the workforce.

To sum up， there are still many shortcomings in this paper. Some factors have to be given up due to lack of data and are only selected 20 years for reference， which affect the accuracy of the conclusion in this paper.

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