Demographics and FDI: Lessons from China's One-Child Policy

John B. Donaldson, Christos Koulovatianos, Jian Li, Rajnish Mehra

NBER Working Paper No. 24256
Issued in January 2018, Revised in November 2018
NBER Program(s):Development Economics, Economic Fluctuations and Growth, International Trade and Investment

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.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24256

Users who downloaded this paper also downloaded* these:
Antràs and Chor w24185 On the Measurement of Upstreamness and Downstreamness in Global Value Chains
Chari, Liu, Wang, and Wang w24099 Property Rights, Land Misallocation and Agricultural Efficiency in China
Goldfarb and Trefler w24254 AI and International Trade
Garriga, Hedlund, Tang, and Wang w23819 Rural-Urban Migration, Structural Transformation, and Housing Markets in China
Alquist, Berman, Mukherjee, and Tesar w24241 Financial Constraints, Institutions, and Foreign Ownership
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us