Question

China grows at around 9 percent a year, but its one-child policy will start to reduce the size of China's working-age population within the next 10 years. India, by contrast, will have an increasing working-age population for another generation at least. a. Given the expected population changes, do you think China or India will have the greater economic growth rate? Why? b. Would China's growth rate remain at 9 percent a year without the restriction on its population growth rate? c. India's population growth rate is 1.6 percent a year, and in 2005 its economic growth rate was 8 percent a year. China's population growth rate is 0.6 percent a year, and in 2005 its economic growth rate was 9 percent a year. In what year will real GDP per person double in each country?

Short answer

India may have greater economic growth due to an increasing working-age population. Without population restrictions, China's growth might have stayed higher. India’s GDP per person will double in 8.75 years, and China’s in 7.78 years.

Step-by-step solution

- Analyze Economic Growth Rate with Population Trends

Consider the effect of working-age population trends on economic growth. China's one-child policy will lead to a reduction in its working-age population, which could decrease economic growth. India's increasing working-age population suggests potential for continued economic growth.

- Evaluate China's Growth Without Population Restriction

Discuss the possibility of China's growth rate remaining at 9 percent without the one-child policy. If the labor force continued to grow, it might sustain high economic growth for longer.

- Calculate the Doubling Time for Real GDP per Person

Use the Rule of 70 to estimate how long it will take for the real GDP per person to double. The formula is \( \text{Doubling Time} = \frac{70}{\text{Growth Rate}} \). For India, with a growth rate of 8%, \( \frac{70}{8} = 8.75 \) years. For China, with a growth rate of 9%, \( \frac{70}{9} = 7.78 \) years.

Key concepts

economic growth rate

Economic growth is the increase in the production of goods and services in an economy over a period of time. The economic growth rate is typically measured as the percentage increase in real GDP. Factors that influence this rate include technological advancements, labor force changes, and capital investments. In our exercise, China has an economic growth rate of 9 percent while India's is 8 percent. The growth rate can be affected by population dynamics, such as a decrease in the working-age population, which can reduce overall productivity and, hence, economic growth.

working-age population

The working-age population refers to individuals typically between the ages of 15 and 64 who are capable of working. This group is crucial because they contribute to economic activities and generate income. The exercise underlines how China's one-child policy is set to decrease its working-age population, potentially hindering economic growth. On the contrary, India's working-age population is expected to grow, suggesting a more favorable outlook for continued economic growth as more people enter the labor force, contributing to productivity.

one-child policy

China's one-child policy, introduced in 1979, was aimed at controlling population growth. While it succeeded in reducing the birth rate, it also led to an aging population and a shrinking working-age population. Over the next decade, as more people retire and fewer young people enter the workforce, China's economic growth may slow down because there will be fewer workers to drive economic production. This is in contrast to India, where no such population control measures have been implemented, resulting in a continuously growing working-age population that can support higher economic activity.

Rule of 70

The Rule of 70 is a mathematical formula used to estimate the number of years it takes for a quantity to double, given its annual growth rate. The formula is: \( \text{Doubling Time} = \frac{70}{\text{Growth Rate}} \). Applying this to our exercise, for India's economic growth rate of 8%, the doubling time for real GDP per person is approximately 8.75 years. For China's growth rate of 9%, the doubling time is around 7.78 years. This means that, assuming stable growth rates, China's real GDP per person will double faster than India's.

GDP per person

GDP per person, or GDP per capita, is a measure of the economic output per individual within a country. It is calculated by dividing the total GDP by the country's population. This metric helps compare the economic well-being of citizens in different countries. A higher GDP per person indicates a higher standard of living. In our context, tracking the GDP per person in China and India helps us understand not only the overall economic growth but also how that growth translates into individual prosperity. With China's economic growth currently outpacing India's, its GDP per person would also increase more quickly, despite potential future challenges from an aging population.