The Effects Of Population Aging On Resident Consumption

China has witnessed a quick and steady growth of average of10%GDP each yearsince its integration into the global economy. China’s growth performance has made ita major economic power in the world. However, the limited residential consumptionpropensity and domestic demand which eclipse the future growth outlook havebecome the bottleneck of economic development. The insufficiency of domesticconsumption has received wide academic concern over the years. It’s urgent to studythe causes of the inadequate consumption of China and is also practical to find theway to promote residential consumption.This paper examines the residential consumption of China from the populationage structure perspective, and analyzes the influence of old-age dependency rate andbirth rate on both rural and urban resident consumptions. The first part of this paperdiscusses the paths theoretically on which aging population affects the consumptionstructure, then constructs a consumption model where agents are with uncertainsurvival to investigate how old dependency interacts with consumption and otherconsumption determinants. Then this paper elaborates how old dependency rateinteracts with rural and urban residential consumptions under the consideration ofmany other instrument variables. In panel data analysis, using provincial datafrom1990to2010, this paper develops a biased-corrected System GMM estimator inthe dynamic framework, then, this paper tests the robustness and endogeneity of thevariable of old dependency rate. The empirical evidence shows that old dependencyrate has significant positive effects on both total domestic and urban residentconsumptions but has significant negative effects on rural resident consumptions.Human capital investment has a significant positive effect on resident consumptionpropensity all over the country. The effect of consumption rate in last period oncurrent consumption varies from urban to rural areas. Main conclusions are drawn andsuggestions are given in the last part of this paper.