China's one-child policy and growth

"Have a baby by me baby, be a millionaire

I write the check before the baby comes, who the f*ck cares" - 50 Cent

Maybe it should be "do not have a baby, be a millionaire"? Or at least, maybe one should "care" about the effect on society of another baby and especially in countries with high fertility rate and the quality of life of that child. And I am not just talking in monetary terms but in more general ones like development and growth.

Let us compare two countries that has taken two different paths; China and India. Let us as well present some well known facts. It is a well known fact that China is the country with the world's largest population (1.33 bn according to CIA) and India is the one with the second largest population (1.17 bn according to CIA). Another commonly known fact is that China has implemented a one-child policy while India has not taken such action to control their rising population.

Now listen, here it is perhaps worth pointing out that this subject is in many ways a sensitive one. To decide how many children you want is a very basic human right and trying to control something as fundamental (for every living spieces) as reproduction will always be difficult and often painful. On the other hand if we take a bigger perspective it is easy to see that an uncontrolled birthrate can have negative effects on society which then translates to negative effects for individuals which "may also indicate difficulties for families, in some situations, to feed and educate their children and for woman to enter the labor force"(www.cia.gov). The reason for this article is not to advocate for the one-child policy, it is obviously an extreme measure to an extreme problem. Family planning is not needed in an ideal world, but as we already know, we are not living in an ideal world.


Let us rewind the tape a bit though. The reason for this post was a graph (which can be seen below) I did in a growth theory class where the aim was to compare GDP growth between two countries, China and India, one with a strict family planning policy and one without respectively. I had expected to see some kind of difference between the two but not such a distinct one that I found. The graph shows the difference (here measured in the natural logarithm of the standard deviance) between the two countries' GDP, GPD/capita and population between 1950-2009. As you can see the two countries follow each other, more or less, until 1979-1980 where there is a sharp break followed by a continuous increase in the standard deviance of both GDP and GDP/capita and a gradual decrease in population. As it turns out 1979 is the exact year when China implemented their one-child policy. But can this divergence be all because of a strict family planning system and can it happen so fast? Probably not, but something most certainly happened.

Well, if you take a look at China's fertility rate (in the graph below) over the years you can see that largest decrease in China's population growth happened ten years before the one-child policy but that the policy has lowered it further from almost 3/1000 to 1.7/1000. This is also pointed out by Hesketh who says that the voluntary and more campaign-like "late, long, few" (later childbearing, longer time between children and fewer children) was the reason that the fertility rate dropped from almost 6/1000 to 3/1000. She points out that the further decrease maybe would have happened without the one-child policy. As you can see India has had a perhaps more "natural" but still decreasing trend. This would indicate that the one-child policy did not have such a sudden effect on the fertility rate and that a much larger decrease had happened before and without any big change in differences between the two countries' GDP.

Even though the effectiveness can be questioned and perhaps voluntary methods would have had better and quicker results Hesketh also says that according to Chinese authorities the one-child policy has prevented 250 to 300 million births (!). The social cost of 250 million more citizens for a developing country may be hard to calculate, and for a person from a country like Sweden with a population of barely 10 million even hard to fathom.

According to Rosenzweig & Zhang the one-child policy has had only a modest effect on human capital in China contributing to schooling attainment by 4%, college attainment by 9% and grades by 1 %. It may not seem much but at least to me 9% more in college for a country of China's size sounds as a whole lot more college students right?

Another factor to take a look at is population growth. The graph below shows just that for China and India plus Germany and Sweden. As you can see this looks a lot like the fertility rate graph, but here the difference is even more clear. India has a population growth about 175% higher than China while China actually has had a lower growth than Sweden for a couple of years.

The problem China is facing today is rather a problem of an aging population just like Sweden and Germany and many european countries. Hesketh (2005) calls this problem the 4:2:1, meaning that a couple has to care for one child but four parents since they are the only child themselves.

So, how does this relate to the first graph and the huge difference that began showing in 1979-80? Well, apparently all the change cannot be attributed to the one-child policy, although having 250 million people less to feed and care for has to free up a lot of resources to raise the standard of living for the rest. The answer is probably that the one-child policy was part of a bigger reform program initiated at the same time after the cultural revolution and it is this reform to a kind-of-market economy that has produced the differences shown in the graph.

The question that follows is: Is China's model the best one for developing countries?

I do not know but perhaps it is time for the western world to stop believing that their way is the only one to go?
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Update 8/23/10, 08:37 am

I just now saw that The Economist had also published an article about the one-child policy. Why did they not ask us to do it?

Time keeps ticking

"Refuse to give up, your mistakes don't define you

They don't dictate where you're heading, they remind you

That time keeps ticking"

I think T.I. was talking more about personal growth than GDP growth, but you will soon see the importance of the last sentence "Time keeps ticking" for GDP.

Take for example two countries such as Sweden and Spain. In 1950 Sweden had a GDP/capita of $11316 and Spain's GDP/capita was $4012. That's a relation of 4012/11316 = 0,35, in other words, Spain's GDP back in 1950 was only 35 % of Sweden's. Now let us look at the GDP in 2009 of both countries. Sweden's GDP is $39488 and Spain's is $34769, that gives us a relation of 34769/39488 = 0,88 = 88%. From being 1/3 the size of Sweden's economy Spain's GDP is now 9/10 of Sweden's.

The interesting thing is what is behind this development. Let us look at the growth of GDP for both countries during this period. Using this equation and solving for g or by using the rate function of an excel spreadsheet this gives you a anual growth of 2,14% for Sweden and 3,73% for Spain between 1950 and 2009. Comparing the two economies' GDP in 1950 with 2009 shows that 1,5% more growth makes Spain's economy almost nine times larger in 50 year when 1,5% less growth makes Sweden's economy only about three times larger. That is the power of the time that keeps ticking.

I'm going to take advantage of some work from my Growth Theory class here and first show some very interesting but sad facts and then some equally interesting but a bit more positive facts.

First. Let us look at this graph that shows how world GDP/capita has converged over time the last 50 years.

This graph shows that during the last 50 years the GDP/capita for Western Europe, North America and Oceania has indeed converged, that is the standard deviance between these countries' GDP has become smaller. The graph also shows however that GPD/capita, if we count all countries, has not converged but rather, the standard deviance, which is the measure used here, has become larger with time. This sadly means that measured in GDP/capita the world is a more inequal place today than 60 years ago and that it has  gotten a lot worse in only the last 30 years.

Now the positive facts. If you look closer at the graph you can see that the standard deviance has become smaller in last couple of years, let us hope that is just not something tendency but that it will keep on falling.

If, by using the same formula as above, you compare World GDP/capita growth the between 1950-2009 with growth the last ten years, between 1999-2009, you can see that between 1950-2009 it was 1,59% and that in the last ten years it has been 2,37%. Add to that the fact that most rich countries has had slower average growth the last ten years than they had the last 60 years this must mean that there are other economies growing more than before.

This second graph shows GDP/capita growth of some countries the last ten years and there you can see that fortunately growth is now occuring in other places than the rich part of the world. You can also  see, a bit surprisingly, that some of the VISTA-countries have not had very high growth in the last ten years.

 

Hopefully this will mean that the blue line in the first graph will take a dive towards the red on in the coming decades.

Although. Keep in mind that even if Angola in future can keep the same incredible growth as the last ten years it would still take them more than 20 years to reach the same GDP/capita as Sweden has today!

Source: Groeningen Growth and Development Centre, The Conference Board: Total Economy Database