Decomposing and Predicting China's GDP Growth: Past, Present, and Future

Abstract

This study investigated how different facets of demographic changes have played a role in the economic growth from a more holistic and dynamic perspective. We conducted a yearly decomposition on the growth rate of real GDP and GDP per capita during the period 1991-2015, by quantifying the contributions of four factors- the growth in population size, shifts in the age structure, changes in labor force participation, and improvement in labor productivity. Furthermore, we performed a scenario analysis to demonstrate how these factors can be modified to maintain a steady economic growth in the next 30 years. We found that population size, age structure and labor force participation have played different roles at various stages of development, while the labor productivity has always made the largest contribution throughout the study period. In 1991-2010, the negative impact caused by the reduction in labor force participation nearly offset the positive impact from the increasing working-age population. Besides, it is noteworthy that due to rapid population ageing in China, the contribution of age structure to GDP growth has turned from positive to negative in recently five years, signifying the arrival of demographic deficit and it is expected to worsen in a rapidly ageing society.