A Study On The Effect Of Population Structure On Outward Foreign Direct Investment

Nowadays, population aging is the problem which the world generally faces. Since the Second World War, the world demographic has changed dramatically, the national population growth rate of most countries is declining, while there is a gradually improvement of average life expectancy, the result is the general trend of population aging. Currently the developed countries have run ahead of accessing the aging society. Though the developing countries remain the young population structure on the whole, their population aging speed has exceeded the speed of developed countries, which make them have to face the challenge of quickly adjusting to the consequences of population aging at a lower economic level.With the economic globalization quickens its step and trade relation between countries becomes closer, from the 60’s and 70’s of the last century, multinational corporations take the foreign investment as a new direction of development. After 1980s, the international investment has come into the rapid development stage; multinational corporations took advantage of production factors in their home country to establish subsidiaries and factories in the world to make the allocation of the factors more fully optimized on a global scale, and also greatly reduced the production cost. With the further deepening of the division of the factors, the importance of foreign investment to national economies are growing and rapidly becoming an important means of countries’enterprises to participate in international competition and occupy the overseas markets.Under the dual background of Changes in international investment patterns and population aging situation, this paper attempts to study the correlation between these two variables. Through the route analysis of the influence of demographic structure of foreign direct investment, this article established the mechanism analysis framework of how population growth rate、child dependency ratio and elderly dependency ratio have impact on FDI though capital flows and labor costs to provide the theoretical support, and then raised an empirical test based on the assumptions from the framework. Based on the sample data of 51 countries from 1995 to 2012, we use dynamic system GMM method to investigate whether the population structure of the countries has any explanatory power on the country’s domestic outward foreign direct investment. The empirical results indicate that a country’s population structure do has effect on its foreign direct investment, the increasing of population growth rate can promote the outward foreign direct investment elderly dependency ratio has a significant positive impact on foreign investment, and the child dependency ratio has a negative effect. The sample is further divided into 20 developed countries and 31 developing countries, in both sets of samples, the results show that the structure of the population still has a role in their outward foreign direct investment, confirmed the interrelationship between these two variables. We found that the population aging of developed and developing countries all have significant positive effects on their outward foreign direct investment, but the impact on the developing countries is much more than on developed countries. In addition, to find out whether the correlation of foreign investment and demographic in China is consistent with other developing countries, the article has also added the outlier dummy variables to the econometric models to be tested, proved that outward foreign direct investment from developing countries, including China, is also influenced by demographic factors. Through the channel test, the article proved that demographic change affects foreign direct investment though both capital accumulation and labor costs, dependency ratio performance is particularly more obvious, in addition, which is also verified by divided into the two groups—— developed and developing countries, the impact of the population structure through capital accumulation and labor costs on the OFDI of the developing countries is more significant relative to developed countries.