Summary:
As population aging advances, China's traditional capital and labor driven growth pattern is becoming increasingly unsustainable. China's growth transition must be accelerated. The Outline of the 14th Five-Year Plan and Vision 2035 explicitly states that China needs to effectively transform its growth pattern and promote changes in the quality, efficiency and drivers of growth. The main objectives of the growth transition are to improve the contribution of total factor productivity (TFP) to economic growth and to stimulate new drivers of economic growth. Countries that demonstrate higher levels of aging also tend to contribute more TFP to economic growth. However, a critical phenomenon that cannot be ignored is that a high TFP contribution does not lift aging economies out of stagnation, as demonstrated by Japan and some European economies. This background leads to the focus of this paper, namely whether increasing the TFP contribution rate can effectively counteract the impact of aging on economic growth. This issue is both controversial and innovative, but it also has important practical significance for China and can yield guidance on how to better realize Chinese-style modernization with such a large population. Hence, based on the Penn World Table (version 10.0), this paper adopts the production function method to measure the TFP levels and their contribution to growth in 90 economies from 1961 to 2019. A regression model is constructed to analyze the effect of increasing TFP contribution on economic growth in an aging population, using cross-country panel data. This paper draws three main conclusions. First, the aging rate is positively correlated with the TFP contribution rate. However, the increased TFP contribution stems mainly from a “passive rise” due to the rapid decline in traditional growth drivers, rather than an enhanced role of TFP in driving the economy. Second, as the aging rate increases, the promoting effect of the increased TFP contribution on economic growth weakens significantly. This finding holds after excluding the effect of the passive rise in the TFP contribution rate. Overreliance on increasing TFP to counteract aging makes economies prone to a situation characterized by high TFP contribution and low growth. Third, the subgroup regression shows that neither the TFP-driven pattern nor the traditional capital and labor driven growth pattern has any significant advantage in coping with population aging. Furthermore, the effect of aging on economic growth is negative and significant. The growth pattern that emphasizes both TFP and traditional growth drivers is more effective in mitigating the negative impacts of aging on economic growth, making such impacts insignificant. This paper makes three contributions. First, it proposes and systematically demonstrates the passive rise of the TFP contribution rate in an aging context. This finding enhances the understanding of the problem posed by a high TFP contribution rate in an aging economy for all sectors of society. Second, this paper systematically analyzes the effect of increasing the TFP contribution rate to counteract aging. Studies usually focus on the role of TFP alone in aging contexts, neglecting the fact that factors such as TFP, capital, and labor are the main components of a growth system and are closely interconnected. From the perspective of the entire growth system, this paper finds that a growth pattern that emphasizes both traditional and new drivers is more helpful in offsetting the effects of aging than a TFP-driven growth pattern, which is a novel finding. Third, this paper presents a systematic measurement of the level of TFP and its contribution rate in major economies around the world, and it develops a relatively rich cross-country empirical study, which provides new empirical evidence for analyzing the growth transition in the process of aging. The findings of this paper have valuable policy implications. China's TFP contribution to economic growth is currently low. Thus, in the face of aging, it is necessary to improve the TFP contribution to economic growth, and to transform the previous growth pattern driven by capital and labor. Furthermore, while increasing the TFP contribution rate, the weakening of traditional growth drivers should not be ignored. A TFP-driven growth pattern would be much less growth-enhancing, as it would be difficult for TFP to offset the decline in traditional factors' growth in an aging context. Therefore, China should break through the traditional understanding of existing theories, organically combine the strategy of innovation-driven development with the strategy of expanding domestic demand, and construct a new growth pattern that considers the interplay between both new and traditional growth drivers, so as to better respond to the challenges of aging and meet the growth rate required for the realization of socialist modernization.
刘哲希, 王兆瑞, 吴韬. 老龄化与“高TFP贡献率、低增长”问题[J]. 金融研究, 2023, 522(12): 1-19.
LIU Zhexi, WANG Zhaorui, WU Tao. Aging and the Issue of High Total Factor Productivity Contribution Rates but Low Growth. Journal of Financial Research, 2023, 522(12): 1-19.
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