Population ageing, human capital accumulation and economic growth in China: An applied general equilibrium analysis

Abstract

This paper uses a Computable General Equilibrium model to explore the macroeconomic impact of growth in the human capital stock for a given ageing profile of the population in China, during the first half of this century. It examines whether the projected reduction in the total dependency ratio for the period 2000 to the 2030s can be exploited for energetic human capital formation. Policy simulations show that accelerating human capital formation raises both total output and per capita real income dramatically. Public expenditure on education is, therefore, welfare enhancing, mitigating the adverse effects of population ageing while laying the foundation for supporting China's rapidly increasing elderly population. The basic policy message is that China should significantly increase investment in human capital. The long implementation lags of such policies and the rapidly growing proportion of the elderly population suggest that this investment should be undertaken without delay.