Trade Openness,Human Capital And Demographic Transition In China:Theory And Evidence

Since reform and opening up were initiated in China in 1978,its foreign trade based on labor intensive industry has been developing rapidly.It has taken full advantage of China's demographic dividend and greatly promoted China's economic growth.Meanwhile,the population growth in China has finished the transition from high birth rate to lower birth rate.Especially in recent years,China's population aging is becoming more and more serious,and the demographic dividend tends to disappear.In addition,the level of trade openness and demographic transition are significantly different across regions in China.Does China's rapid growth in foreign trade affect its demographic transition?Is there a significant relationship between regional trade and demographic change?Clarifying these issues is critical not only for improving China's population development strategy and policy system,but also for promoting its sustained growth of population and economy.Due to resource constraints,the substitution effect between the quantity and quality of population is one of the key mechanisms in the relationship among trade openness,economic development and demographic transition.There exist interactions between the quantity and quality of population.The paper's theoretical and empirical analyses are based on the above substitution effect.And it tries to explore the relationship between trade openness and demographic transition from the regional perspective in China,and it puts human capital as a bridge to their relationship.Firstly,this paper makes a theoretical analysis and quantitative test on the relationship between trade openness and human capital.This paper studies the influence mechanism of trade liberalization on the enrollment decision from the perspective of household labor supply.We undertake an empirical examination of the effect of trade liberalization on enrollment decision in China,adopting difference-in-difference regression methodology and using China Health and Nutrition Survey data.And the China's joining the WTO in 2001 is taken as a quasi natural experiment for this examination.We further introduce the household labor supply as a mediating variable,and study the influence mechanism of trade liberalization on the enrollment decision using the mediating effect model.We find that trade liberalization significantly reduces the school enrollment among youth aged from 6-22,particularly the youth aged from 13-18.And the results also show that trade liberalization has significant negative effects on the enrollment of rural households and low-income households.Further mediating effect test shows that the effects of trade liberalization on parental labor supply are very significant.Trade liberalization reduces the children's enrollments by expanding mother's labor supply,especially increasing the non-skill labor supply for mother.In addition,trade liberalization also reduces the enrollment by expanding the employment participation for youth aged from 6-22 and increasing their opportunity cost of schooling.After using provincial panel data from 1981 to 2013,the paper finds that trade openness increase the demand for unskilled workers and suppress human capital accumulation.Secondly,this paper investigates the human capital effect of trade openness and other variables on the demographic transition in China using the instrumental variables regression method based on provincial panel data for the period between 1981 and 2013.The results indicate that trade openness has significant effect on China's demographic transition even when controlling the effect of family planning policy.On the one hand,trade openness improves regional human capital levels by increasing per capita income,thus causing the birth rate to decline and accelerating the demographic transition.On the other hand,trade openness also inhibits regional human capital accumulation by increasing the demand for unskilled labor,thus causing the birth rate to increase and delaying the demographic transition.The results also find that there is a significant substitution effect between education and birth rate,indicating that the substitution effect between the quantity and quality of population exists according the empirical test.In addition,the study also shows that family planning policy is indeed one significant determinant of China's demographic transition.And per capita income,urbanization and industrialization also have played an important role in the process of demographic transition in China.Finally,this paper studies the effect of China's demographic transition and human capital on the development of foreign trade.We decompose China's export value into three margins:extent,quantity and price or quality.Then we calculate and analyze the three margins using 6-digit trade data from the Chinese customs import and export database.The paper further briefly discusses the theoretical influence of population structure and human capital on export margins.Based on the above theoretical analysis and the gravity model,this paper constructs a dynamic panel model,and makes a quantitative test of the effect of population structure and human capital on export margins using China's provincial panel data.The empirical results show that population structure and human capital has significant effect on export margins,but different for the three margins:extent,quantity and price or quality.Our study deepens our understanding of the relationship between trade openness,human capital and demographic transition,and expands the existing research on China's demographic transition.The empirical results have rich policy implications.First,Chinese Government should take more measures to upgrade industrial structure and trade structure,specifically,to reduce the proportion of processing trade characterized by low-technology and labor-intensive and accelerate the development of high-technology industries and modern service industries to expand the demand for high skilled-labor.Second,Chinese Government should continue to increase financial support not only for public education but also for vocational training and social security,which will help for reducing education cost,and thus lead to an increase in the individual investment on human capital.Third,with the acceleration of urbanization,efforts should further be made to improve the reforms on housing,health care,education,social security and some other related aspects to optimize the allocation of public resources and improve public service.Forth,the investment for family development support system should be strengthened,and the government could take some measures to encourage and support for fertility within the scope of family planning policy.Finally,the different regions should carry out different policies and strategies for trade openness and population development according to the local conditions.