De - mographics and FDI: Les - sons from China’s One-Child Policy

In this paper we consider a natural experiment: using China as the treated country and India as the control, we show that the dynamics of the relative FDI flows subsequent to the implementation of China’s one-child policy, as seen in the data, are consistent with neoclassical fundamentals. [...] We net out this possibility by computing labor productivity growth in China and India for the periods preceding and following the 1982 one-child policy intervention.3 We nd the productivity di¤erences to have been very small, allowing us to focus on the e¤ects caused by the exogenous intervention on the population growth rate of China.4 The broad message of the paper is two fold. [...] The intervention is characterized by a sudden decrease in population growth in one of the two countries, similar to the introduction of the one-child policy in China. [...] 14 A key feature of Figure 2 is the simultaneity in the reversal of the trajectory of gL;t and the reversal of the trajectory of gK;t after 1982. [...] In summary, Figure 4 portrays the model implied consequences of a sudden reduction in the treated countrys population growth rate on its K/L and FDI/GDP dynamics: the K/L ratio grows and the FDI/GDP ratio declines, both absolutely and relative to the control.