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Demographics and FDI: lessons from China’s one-child policy
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Journal Article
Demographics and FDI: lessons from China’s one-child policy
2025
Overview
Following the introduction of the one-child policy in China, the capital-labor ratio of China increased relative to that of India, while FDI/GDP inflows to China versus India simultaneously declined. These observations are explained in the context of a simple neoclassical overlapping generations paradigm. The adjustment mechanism works as follows: the reduction in the growth rate of the (urban) labor force due to the one-child policy increases the capital per worker inherited from the previous generation. The resulting increase in China’s domestic capital-labor ratio thus \"crowds out\" the need for foreign direct investment (FDI) in China relative to India. Our paper is a contribution to the nascent literature exploring demographic transitions and their effects on FDI flows.
Publisher
Cambridge University Press
Subject
