NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Christos Koulovatianos

Department of Economics
University of Luxembourg
162A avenue de la Faïencerie
Campus Limpertsberg, BRC 1.06E
L-1511
Luxembourg
Tel: +352-46-66-44-6356
Fax: +352-46-66-44-6341

E-Mail: christos.koulovatianos@uni.lu
Institutional Affiliation: Luxembourg School of Finance

NBER Working Papers and Publications

January 2018Demographics and FDI: Lessons from China's One-Child Policy
with John B. Donaldson, Jian Li, Rajnish Mehra: w24256
Following the introduction of the one-child policy in China, the capital-labor (K/L) ratio of China increased relative to that of India, and, simultaneously, FDI inflows relative to GDP for China versus India declined. These observations are explained in the context of a simple neoclassical OLG paradigm. The adjustment mechanism works as follows: the reduction in the growth rate of the (urban) labor force due to the one-child policy permanently increases the capital per worker inherited from the previous generation. The resulting increase in China’s (domestic K)/L thus ‘crowds out’ the need for FDI in China relative to India. Our paper is a contribution to the nascent literature exploring demographic transitions and their effects on FDI flows.
 
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