Functionary Mechanism between Demographic Structure and Economic Growth in China Based on Cointegrating Methods

Abstract

This study’s objective was to solve the problem of functionary mechanism between demographic structure transition and economic growth in China using cointegration and vector error correction model. The results are: (1) A long-term co-integration relationship exists among birth rate, infant mortality, real GDP per capita and average wage of workers; (2) According to VECM, the adjustment of the economic system is 0.024 when the fluctuation of birth rate deviates from the equilibrium state; (3) Demographic variables are endogenous in the economic system. The conclusions are: (1) In China high-speed economic growth as well as low stable birth rate should be kept and domestic wealth should be accumulated via escalating the average wage; (2) To reduce the impact of the aging population on economic growth in China, high-qualified people’s demand for birth should be stimulated to accelerate the transition of industrial structure from labor-intensive to knowledge-intensive.