Demographic window, human capital accumulation and economic growth in China

Xiujian Peng, The University of Adelaide

This paper investigates the contribution of human capital to economic growth and its potential scope to neutralize the effects of population ageing in China during the first half of the 21st century by using an applied general equilibrium model. In particular, it examines whether the “demographic window” which opened during the1990s and is projected to stay open until the 2030s can be exploited to inject a growth boost into the economy. Such a boost could be delivered through policies of energetic human capital formation and significant government spending on social infrastructure. Policy simulations show that accelerating human capital formation may dramatically raise both total output and per capita real income. Public expenditure on education is, therefore, welfare enhancing, mitigating the adverse effects of population ageing while providing a respectable environment for China’s rapidly increasing elderly population.