Do High Birth Rates Hamper Economic Growth?

Author(s): Hongbin Li and Junsen Zhang

Source: The Review of Economics and Statistics, Vol. 89, No. 1 (Feb., 2007), pp. 110-117
Published by: The MIT Press
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DO HIGH BIRTH RATES HAMPER ECONOMIC GROWTH?

HongbinLi and JunsenZhang*
- This paperexaminesthe impactof the birthrateon economic
Abstract
growthby using a panel data set of 28 provincesin China over twenty
years.Because China's one-childpolicyappliedonlyto theHan Chinese
but notto minorities,
thisunique affirmative
policy allows us to use the
variable to
proportionof minoritiesin a provinceas an instrumental
the causal effectof the birthrateon economic growth.We find
identify
thatthebirthratehas a negativeimpacton economicgrowth.The finding
notonlysupportstheview of Malthus,butalso suggeststhatChina's birth
controlpolicyis indeedgrowthenhancing.

statedin a morerecentsurveypaperby Temple(1999), the

has done littleto modifythe
newempiricalgrowthliterature
conclusionsmade by Kelley.
in
The lack of a conclusionis in partdue to thedifficulty
or
birth
rate
a causal effectof populationgrowth
identifying
on economic growth.A simple growthregressioncannot
provecausalitybecause populationgrowthor birthratein
thegrowthregressionmightbe endogenous.One sourceof
or the feedbackeffect.EcoI.
Introduction
endogeneityis simultaneity
nomicgrowthcan affectfertility
becausewithmoreincome,
betweenpopulation
andeconomicgrowth
relationship
parentalhumancapitalimprovesand thusraisesthereturn
has been subjectto debateforhundredsof years.1The to investment
in the humancapital of childrenrelativeto
mostinfluential
schoolof thought,
or theMalthusianschool, investmentin the numberof children
(Becker & Lewis,
assertsthatgivenlimitedresources,
populationgrowthham- 1973).
in boththe
this
sort
is
well
discussed
of
Endogeneity
pers economicgrowth.The otherschool, called the neo- theoreticalliterature,such as Barro and Becker
(1989),
Boserupianschoolof thought
(Boserup,1981),is moreopti- Becker,
and Tamura (1990), and the empirical
Murphy,
mistic.It arguesthatpopulation
thatis
mayhavea scale effect
such as Wang,Yip, and Scotese (1994). Fertility
literature,
beneficialto economicgrowth.2
Moreover,it challengesthe could be
endogenouseven in the absence of the human
Malthusian
modelfortreating
technological
progressas exogeffect.
For example,Galor and Weil (1996) show
capital
enous.Once technological
progressis allowedto be endog- thatwith
therealwage of womenrises,whichleads
growth,
enouslyderivedin themodel,theroleof populationon eco- to lower
fertility.
Endogeneityof thissortcannotbe solved
nomicgrowth
becomesneutral
orevenpositive(Romer,1986,
the lagged populationgrowthor birthrate as
by
using
1990;Jones,1999).
variablessinceparentsareforward
lookingand
debate,thereis stilla independent
Despitethevoluminoustheoretical
into
account
when
take
making
may
growth
prospects
relativelysmall body of well-testedpropositionsabout the
such
as
if
relevant
decisions.
variables,
Moreover,
fertility
impact of populationgrowthor birthrate on economic
in
are
correa
that
the
extent
of
society,
entrepreneurship
growth.A numberof earlyempiricalstudies,such as Coale
lated with both GDP growthand populationgrowthare
(1986), Hazledine and Moreland (1977), and McNicoll
will be subjectto omittedvariables
theregressions
omitted,
(1984), and severalrecentstudies,includingBarlow(1994),
In general,it is
the
second
source
of endogeneity.
or
bias,
Branderand Dowrick (1994), and Kelley and Schmidt
the
difficult
to
solve
endogeneityproblem with crossbetweenthetwo
(1994, 1995), finda negativerelationship
it
is
hardto produceany variablethat
data
because
variables.However,the majorityof theempiricalanalyses country
an
instrument
can
serve
as
(Mankiw,Romer,and
identifying
cannotprovea negativecausal effectof populationgrowth
or birthrateon economicgrowth(Simon, 1989). A more Weil, 1992; Temple,1999).
accuratestatement
of thedebate,whichis in theinfluential In thispaper,we examinetheimpactof thebirthrateon
data from
surveyby Kelley (1988), is thatthereis no definiteconclu- economicgrowthby drawingon provincial-level
the
can
avoid
China.
data
from
one
sion fromthebodyof empiricaltests.Althoughtherewas a
complicountry
Using
of data.3More imporin the 1990s,mostof it cationof international
comparability
surgeof empiricalgrowthliterature
theuniquepopulationcontrolpolicyin Chinaallows
is reticentabout the effectof populationexcept in using tantly,
thecausal effectof thebirthrateon economic
populationgrowthor birthrate as a controlvariable.As us to identify
variableestimation.
growthby usinginstrumental
China startedits one-childpolicy in 1979.4Underthis
Received forpublicationApril6, 2004. RevisionacceptedforpublicationJanuary10, 2006.
policy, each familyis allowed only one child, and the
*
HongbinLi is assistantprofessorand JunsenZhang is professorof
economicsin theDepartment
of Economicsand theInstitute
of Economics, The Chinese Universityof Hong Kong, Shatin,N.T., Hong Kong.
We are gratefulto TerenceChong, JamesKung, Qinglai Meng, Dani
Rodrik,and two anonymousrefereesforveryhelpfulcomments.We also
thankKit Yin Chun for excellentresearchassistance.The authorsacknowledgefinancialsupportsfromtheNationalNaturalScience Foundationof China (No. 70233003), theChineseUniversity
of Hong Kong,and
the International
Centerforthe Studyof East Asian Development.
1The debatestartedafterMalthus
publishedhis famousbook An Essay
on thePrincipleof Populationin 1798.
2 See also Simon (1975),
Pingali and Binswanger(1987), Hayami and
Ruttan(1987), and Kremer(1993).

3 This issue has been raised

by manyauthors,includingRomer(1989)
and Barro(1991).
4 When
Deng Xiaoping gained power in 1978, he startedChina's
economic reform,which,since then,has led to fastgrowth.An equally
important
change,thatof thepopulationpolicy,startedat almostthesame
time. Deng Xiaoping and his colleagues had views similarto the neoMalthusianschool. In discussionsof populationissues, China's policymakersand scholarsalways referto the limitedavailabilityof land and
othernaturalresources,and thatoutputfromland will inevitablyincrease
by less thanthe increaseof labor.Based on thislogic, China startedits
unique one-child-per-family
policy in 1979.

TheReviewofEconomicsand Statistics,
2007, 89(1): 110-117
February
and Fellowsof HarvardCollegeand theMassachusetts
Institute
of Technology
2007 by thePresident

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All use subject to JSTOR Terms and Conditions

DO HIGH BIRTH RATES HAMPER ECONOMIC GROWTH?

Ill

birthsarepenalized.5The one-child- percentagepointsin a year.Our estimationalso indicates

secondor higher-parity
was initiallyappliedonlyto the thatthesame amountof declineof thebirthratewouldraise
however,
policy,
per-family
Han Chinese,and by way of affirmative
policies,all ethnic the steady-stateper capita GDP by 14.3%. The findings
minoritiesin China were allowed to have two or more suggestthatthe dramaticpopulationcontrolpolicy implechildrenuntilthe end of the 1980s (Anderson& Silver, mentedin China since the late 1970s may indeed have
1995; Hardee-Cleaveland& Banister,1988; Park & Han, helpedthegrowthof theChineseeconomy.9
The restof thepaperis structured
as follows.In section
1990; Peng, 1996; Qian, 1997).6 In some provinces,like
we
the
there
is
no
restriction
on
the
number
of
children
II,
specify
Tibet,
empiricalstrategy.In section III, we
per
introduce
the
In sectionIV, we presentour empirdata
set.
family(Deng, 1995).7
ical
results.
V
Section
concludesthestudy.
allows
This unique affirmative
us
to
use
the
policy
in
a
of
minorities
as
an
instrumental
province
proportion
variable (IV) to identifythe effectof the birthrate on
II.
EmpiricalStrategy
of minorities
economicgrowth.The proportion
is a good IV
forthefollowingtworeasons.First,theprovincialbirthrate
We followtherecentempiricalgrowthliterature
in specof mi- ifyingregression
shouldbe positivelycorrelatedwiththe proportion
equationsfromthesteadystateofa growth
noritypopulationin a provincebecause of the affirmativemodel (see forexample,Mankiwet al., 1992 and Barro&
birthcontrolpolicy.8Second, if we controlfornecessary Sala-i-Martin,
1995). Since we studyprovincesofa country,
of themodelis essentiallyan openeconomygrowthmodellike
variablesthatmaybe correlatedwithboththeproportion
minoritiesand economic growth,such as investment
and thatin Shioji (2001). Specifically,
thegrowthregressionis
of minoritiesshouldbe un- specifiedas follows:
education,thentheproportion
and should not
correlatedwithany omitteddeterminants,
have a directeffecton economicgrowthexceptthrough
the
log(^/^_,) = 7ilog^-i + 72^ + *,7a +
(1)
birthrate.
The regression
resultssupporttheneo-Malthusian
school. where
is thegrowthrateof real percapitaGDP
\og(yjyt-x)
Our GMM estimationsthat controlfor provincialfixed fromtimet - 1 to time
t,logy,-!is thelog ofrealpercapita
show thatthebirthratehas GDP
effectsand correctsimultaneity
laggedforone period,BRtis thebirthratein timef,Xt
a largenegativeeffecton economicgrowth.This findingis are othervariablesthatdeterminethe
steadystate,and 7s
robusteven if we controlforotherdemographicand insti- and e are coefficientsand the errorterm.
Accordingto
tutionalvariables that could be correlatedwith growth. Levine and Renelt
(1992), althougheach paper in the
a declineof thebirthrateby
Accordingto our estimation,
set of rightempiricalgrowthliteratureuses a different
1/1000 will increase the economic growthrate by 0.9 hand-sidevariables,most
papershavefourvariables,thatis,
the initiallevel of real per capita GDP, the birthrate,the
5 To
are given investment
implementthe birthcontrolpolicies, local governments
share(investment
as a percentageof GDP), and
incentivecontracts.These incentivestake the formof fiscalrewardsfor
the
school
enrollment
rate. Besides these varisecondary
and heavypenaltiesforfallingshortof them(Short
birthtargets,
fulfilling
and Zhai, 1998). Moreover,governmentofficialsmay be demotedfor ables, we also followthe literature
and have a numberof
whichmeans
allowingtoo manyabove-quotabirthsin theircommunity,
and institutional
variablesin X.10
demographic
thattheywill lose all futureincome and otherbenefitsassociated with
Following Brander and Dowrick (1994) and Islam
government
positions.
6 In
April 1984, fiveyears afterthe one-childpolicy had been imple- (1995), we estimatethegrowth
regressionin a panelframeforthefirsttimestatedthat work. We divide the total
mentedfortheHan, theChinese government
1978-1998, into four
period,
thereshouldalso be birthcontrolpolicies forminorities,
butthepolicies
intervals.
The
side
variablesare either
five-year
right-hand
should be less restrictive
(Hardee-Cleaveland& Banister,1988). More
only ethnicgroupswitha populationlargerthan 10 million initiallevels or averages over the five-yearinterval.For
specifically,
are subjectto the same policy as theHan, and smallerethnicgroupsare
example,in theperiodof 1978-1983,realpercapitaGDP is
allowed to have second and thirdchildren.However,this birthcontrol
at the 1978 level; the birthrate, the secondaryschool
policyonlyapplies to two largeethnicgroups,Zhuangand Manchu,and
enrollmentrate,the investmentshare,the growthrate of
untiltheend of the 1980s (Deng, 1995).
was notstrictly
implemented
7 Tibetis
droppedfromthe laterempiricalworkbecause data forTibet labor forceshare,and the dependencyratioare five-year
has specificpolicies forit.
are notcompleteand thecentralgovernment
8 China has 55 ethnic minoritieswho live in different
parts of the averages.
and Temple(2001) and Shioji
Accordingto the2000 census,theHan accountedfor9 1.59% of
FollowingBond, Hoeffler,
country.
thetotalpopulationin China.The threelargestethnicgroupsin China are
(2001), we employ the generalizedmethodof moments

Zhuang,Manchu,and Hui, whichhave a populationof 16.2 million,11.0

million,and 9.8 million,respectively.Zhuang mainlylive in Guangxi,
Yunnan,and Guangdong;Manchu can be found in Liaoning, Hebei,
Heilongjiang,Jilin,Inner Mongolia, and Beijing; and Hui are widely
in 19 provincesin China. Amongall theprovinces,Tibet has
distributed
the largestproportionof minoritypopulation;according to the 2000
census, up to 93.89% of its populationis minority.
Qinghai ranksthe
second,with59.43% of its populationas minoritiesin 2000. Jiangxiand
Shanxi have the smallestproportionsof minoritypopulation,both of
whichare lowerthan0.3%.

9 This statement
is purelypositive,whichhas ignoredotherpositiveor
negativeaspectsof forcedbirthcontrolpolicies.We do notintendto make
any normative
judgmentabout China's birthcontrolpolicies.
10Besides the birthrate,
migrationand populationstructures
may also
affectgrowth.Thus,we will use thein-migration
rate,thegrowthof labor
forceshare,and thedependencyratioto testand controlfortheireffects
(theage-dependency
effect)on growth.See Bloom andWilliamson(1998)
and Kelley and Schmidt(2005) formoredetailedarguments.

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112

THE REVIEW OF ECONOMICS AND STATISTICS

III.
Data
forthegrowthregressions.11
The firststep
(GMM) estimator
of the GMM methodis to take the firstdifference
of the
We employ provincial-leveldata fromChina for the
growthequationin orderto eliminatethe fixedeffects.IV
test.As arguedabove,theChinesedataareunique
empirical
estimationsare thenapplied to the firstdifferences.
The
because China's affirmative
populationpolicy providesa
GMM estimator
cannotonlydeal withomittedvariablebias
debate.
fortestingthepopulation-growth
naturalexperiment
and theendogenousbirthrateas raisedin theintroduction,
data fromone countrycan also avoid theinconEmploying
butcan also deal withtheendogeneityassociatedwiththe
aresubjectto.
ofdatathatcross-country
regressions
firstdifferenceof lagged per capita GDP. Essentially, sistency
In
variables
not
be
data,
consistently
may
cross-country
logyt-1 log,_2is correlatedwiththeerrorterme, e,_i, definedacross countriesbecause different
countrieshave
and is thusan endogenousvariablein the first-differenced
different
statisticalmethods(Barro, 1991; Romer,1989).
equation.
fromone countrycan avoid thisproblem,to a
data
Using
There are two GMM approaches:the first-differenced
defined
because themeasuresare consistently
extent,
GMM (DIF-GMM) approachand thesystemGMM (SYS- large
across provinces.Chineseprovincesare also largeenough
to apply
GMM) approach.Caselli et al. (1996) werethefirst
for the purposeof this studywith an average provincial
theDIF-GMM approachin estimating
a growthregression.
of 33 million,whichis largerthanthepopulation
In the DIF-GMM estimation,
to begin with,one takes the population
of mostcountriesin theworld.
firstdifference
of thegrowthequationin orderto eliminate
The data set consists of demographicand economic
theprovincialfixedeffect.GMM is thenappliedto thefirst
variables of 28 Chinese provincesfor the period 1978difference
withthefirstdifference
of laggedpercapitaGDP
1998.14Demographicvariablescome fromtheBasic Data
instrumented
1
t(logy
logyt-2)
by the past levels of per
ofChina'sPopulation(SSB, 1994) and variousissuesofthe
capita GDP, which,in our case, are logyt-2,logjr_3,and China StatisticalYearbooks
(SSB, 1980-1999). Economic
logyt-4ifthelags exist.Bond et al. (2001) and Bond (2002) variablesare collectedfromthebook of the
Comprehensive
arguethatDIF-GMM could be subjectto the weak instru- StatisticalData and Materials on 50 Years New China
of
mentand finitesamplebiases. To deal withtheseproblems,
(SSB, 1999) as well as the China StatisticalYearbooks
theyuse an SYS-GMM estimator,
developedby Arellano (SSB, 1980-1999). Real per capita GDP is measuredat
and Bover (1995) and Blundell and Bond (1998), which constant
of
(1952) price.Table 1 reportssummarystatistics
The SYS- variables.
may have superiorfinitesample properties.12
GMM estimator
combinesequationsof thefirstdifferences The data show thatChina's
provincesachieved a very
instrumented
by lagged levels, with an additionalset of highgrowthratein thesampleperiodand at thesame time
equationsin levels instrumented
by laggedfirstdifferences. kept the populationgrowthrate and birthrate low. The
Since theSYS-GMM estimatormaybe superior,we use it annual
growthrateof therealpercapitaincomewas as high
as our main estimator.
We also reportresultsof the DIF- as 8.1% between 1978 and 1998. The annual
population
GMM forcomparison.
growthratewas a low 1.4% and the birthratewas lower
In thispaper,we use theaffirmative
birthcontrolpolicy than2%.15The data also showa considerable
heterogeneity
as theidentifying
instrument
forthebirthrate.In particular, in botheconomic
Guangdongexperigrowthand fertility.
we use theproportion
of minority
populationin a province enced themostrapidgrowthin theperiod1978-1983 with
as the IV As discussedabove, althoughthe Han Chinese an annual
growthrateof 14.6%, while the lowestgrowth
have been subjectto the one-childpolicy,minoritieshave rateof0.3% was inAnhuifrom1983-1988.
Ningxiahadthe
been allowed to have morethanone childeven up to now.
highestbirthrateof 2.8% in theperiod 1978-1983, while
thebirthratein a provinceshouldincreasewith
Therefore,
Shanghaiachieveda birthrateas low as 0.6% in theperiod
the proportionof its minoritypopulation.13
On the other 1993-1998. The
populationis
averageshareof theminority
hand, if we controlfor necessaryvariables thatmay be 10.7% witha standarddeviationof 15.7.
correlatedwithboththe proportion
of minoritiesand ecoTo serve as a good IV for the birthrate in the firstnomicgrowth,such as investment
and education,the pro- difference
of minority
theproportion
estimation,
population
portionof minoritiesshould have no partial effecton needsto have enoughvariationovertime.In orderto check
growth,and shouldnotbe correlatedwithunobservedfac- this,we examinecarefullythe firstdifference
of thisvaritorsthataffectgrowth.
of
the
or
the
able,
minorityproportionover the
change
On
average, the five-yeardifferenceis
five-yearperiod.
11See also Arellano and Bond (1991), Caselli,
Esquivel, and Lefort aboutfiveoutof a thousandforthewholesample.Although
and Blundell and Bond
for more details of the GMM
(1996),
(2000)
method.
12Note thatrelativeto DIF-GMM, SYS-GMM
requiresan additional
assumption,relatedto the initialconditions.See Bond et al. (2001) for
detaileddiscussion.
13Since the one-child
policy startedto apply to two minoritygroups,
Zhuang and Manchu in the 1990s, we exclude them fromthe total
minority
populationforyearsin the 1990s.

14The
startingdata set consistsof 31 provincesin China,but we drop
threeprovinces:Tibet,Hainan, and Chongqing.Hainan and Chongqing
are omittedbecause theywere separatedfromGuangdongand Sichuan,
in the 1990s.
respectively,
15Note thatwe followtheliterature
and use thecrudebirthrate.See, tor
example,Branderand Dowrick(1994).

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DO HIGH BIRTH RATES HAMPER ECONOMIC GROWTH?

113

Table 1.- SummaryStatistics of Variables

Variables
Annualgrowthof realpercapitaGDP
Annualpopulation
growthrate
Birthrate(1/1000)
of minority
Proportion
population
Real percapitaGDP (1,000 yuanat
1952pricelevel)
enrollment
rate
Secondary-school
Investment
share
rate
In-migration
Growthof laborforceshare
Youthdependency
ratio
ratio
Old dependency
Tradeshare
Government
spendingshare

Mean

Standard
Deviation

112
112
112
112

0.081
0.014
18
0.107

0.032
0.004
4
0.157

0.003
0.004
6
0.001

0. 146
0.025
28
0.617

112
111
112
112
112
112
112
111
112

6.165
0.777
0.296
0.002
0.011
0.320
0.049
0.003
0.141

0.609
0.130
0.082
0.004
0.013
0.064
0.015
0.004
0.063

4.848
0.444
0.132
-0.004
- 0.024
0.179
0.022
0.000
0.052

7.932
0.998
0.525
0.027
0.060
0.429
0.114
0.028
0.369

Min

Max

in the range of (0, 2/1000), stageusingcovariatesin specification

thereis a high concentration
(2) oftable3. The IVs
about60% oftheobservations
areoutsidethisrange.In fact, includedare thefirstdifference
of theproportion
of minorthestandarddeviationis elevenout of a thousand,whichis itypopulation,and the ten-year,fifteen-year,
and twentytwice as large as the mean. In general,the distribution yearlagged LogGDP. For thelags of LogGDP, we experiof the minorityproportion mentby includingone, two, and then all threeof them
shows thatthe firstdifference
overtimehas a reasonablylargevariation,
and thisvariation respectively.
The f-statistics
and F-statisticsreportedin the
is not all caused by a few outliers.The proportionof tableare correctedforheteroskedasticity
and serialcorrelaminority
populationmayhave changedforseveralreasons. tion.
birthcontrolpolicy may have an
First,the affirmative
Results of these regressionsshow that the IVs have
accumulativeeffectover time.The accumulativeeffectis explanatorypowerforthe firstdifference
of the birthrate
in provinceswithlarge minority
more significant
popula- (columns1-3), as theP-valuesof thejointsignificance
tests
tionssuch as Xinjiang,Guanxi,and InnerMongolia. Sec- for IVs in all threecolumns are smallerthan 0.01. The
As partof proportion
ond, migration
may also changetheproportion.
of minority
populationhas a positiveeffecton
the developmentprocess,people frominlandand western thebirthrate,and thiseffectis
at the 1% level.
significant
to coastalprovinceswheremostof These resultsindicatethatthe one-child
provinceshave migrated
policy is indeed
theindustrial
centersare located.Migrationof thissortmay effective
in reducingthefertility
oftheHan Chineserelative
affecttheproportion
of minority
populationin a provincein to minorities.For the equation of the firstdifference
of
eitherdirection.
of China LogGDP, the
Moreover,thecentralgovernment
joint significanceteststatisticforIVs is not
has deliberatelysent Han Chinese to westernprovinces,
significantwhen we use only the firstdifferenceof the
wheremostethnicgroupsare located,forgovernancepurproportionof the minoritypopulationand the ten-year
poses. This typeof migrationtendsto reducetheminority laggedLogGDP as IVs [column(4)], butitbecomessignifproportionin westernprovincesand increase it in other icantwhen we also includethe fifteen-year
or fifteen-year
provinces.Finally,the proportionmay also change if mi- and twenty-year
[columns
(5) and (6)].
lagged LogGDP
norityand Han have different
mortality
patterns.
This suggeststhatwe shoulduse all threelags of LogGDP
whereavailable, as well as the firstdifference
of the proIV. EmpiricalResults
of
as
IVs
in
our
GMM
estimaportion minority
population,
in
tions
order
to
avoid
the
weak
instrument
problemas
This sectionsystematically
testswhetherthe birthrate
raised
Bond
et
al.
and
Bond
(2001)
(2002).
by
has a negativeeffecton economicgrowth.We firstprovide
In table3, we reporttheGMM estimateswith/-statistics
thebasic resultsand thenconductsome sensitivity
tests.
thatare heteroskedasticity
robust.We apply the Blundell
and
Bond
(1998) two-stepestimator,using Windmeijer
A. Basic Results
correctionsto the covariancematrix.
(2005) finite-sample
To testwhetherthe IVs have explanatorypowerforthe To statistically
examinethevalidityof ourIVs, we conduct
twoendogenousvariables,we runregressionswiththefirst theHansenoveridentification
restriction
test.16
The P-values
differenceof the birthrate (BRt - /?,-i) and the first
differenceof the five-yearlagged LogGDP (\ogyt-\16The Hansentestis a testof
restrictions.
The jointnull
overidentifying
are correctlyexcluded from
\ogyt-2)as dependentvariables,and reportthe resultsin hypothesisis thatthe excluded instruments
thestructural
growthequation,and thatthestructural
equationis correctly
table2. Note thatGMM does nothave a first-stage
regresdistributed
as
specified.Underthenull,theteststatisticis asymptotically
sion. Thus, we can thinkof these regressionsas the first c/i/-squared
in thenumberof overidentifying
restrictions.
We employthe
In thiscase, thetest
stageof a two-stageleastsquaresapproach,withthesecond efficientGMM estimatorallowingheteroskedasticity.

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THE REVIEW OF ECONOMICS AND STATISTICS

114

Table 2- RegressionsExaminingthe ExplainingPower of InstrumentalVariables for the First Differenceof the Birth Rate and the First
Differenceof the Five-yearLagged LogGDP
DependentVariables:
oftheFive-year
FirstDifference
LaggedLogGDP

FirstDifference
of theBirthRate

Fifteen-year
laggedLogGDP

(3)

0.014***
(4.85)
-0.002*
(-1.84)

0.012***
(4.56)
0.0001
(0.01)
-0.002
(-0.71)

0.015***
(4.56)
-0.003
(-0.58)
0.007
(0.69)
-0.007
(-0.90)

0.632
(1.70)
-0.057
(-0.63)

-0.001
(-0.25)
-0.005
(-0.63)
0.009***
(2.91)
0.010***
(3.29)
0.008**
(2.50)

-0.008*
(-1.72)
-0.0003
(-0.04)

-0.015***
(-3.61)
-0.003
(-0.36)

0.459**
(1.98)
-0.099
(-0.20)
0.248
(0.64)
0.577
(1.40)
1.034**
(2.38)

Twenty-year
laggedLogGDP
Othervariables
Secondary-school
enrollment
(firstdifference)
Investment
share(firstdifference)
Period1983-1988
Period1988-1993
Period1993-1998
Jointsignificance
testof IVs
(E-statistics)
(P-value)
Provinces
Observations
/^-squared

15.68
<0.01
28
83
0.58

0.016***
(4.17)
0.014***
(3.53)
11.14
<0.01
28
56
0.65

0.024***
(3.38)
14.36
<0.01
28
28
0.81

(5)

(6)

0.262
(0.76)
1.164***
(5.74)
- 1.245***
(-6.24)

0.275*
(1.75)
0.945***
(4.42)
0.048
(0.17)
-1.1 13***
(-6.60)

(4)

(2)

(1)
IVs
of minority
Proportion
population
(firstdifference)
Ten-yearlaggedLogGDP

1.65
0.21
28
83
0.95

0.145
(0.68)
0.163
(0.50)

0.503*
(1.78)
0.236
(0.79)

0.587**
(2.22)
0.908***
(3.39)

0.605*
(1.72)

14.85
<0.01
28
56
0.98

38.48
<0.01
28
28
0.99

levelsof 10,5, and 1%. LogGDP is thelog of realpercapitaGDP. We

in parentheses.
/-statistics
thatarerobustto heteroskedasticity
andserialcorrelation
Notes:We report
*, **, and *** represent
significance
enrollment
rate(Guangxiprovincefortheperiod1983-1988).
lose one observation
in regressions
(1) and (4) becausethereis one missingvalue forthevariablesecondary-school

in table
in all regressions
fortheHansenJ-statistics
reported
3 are largerthan0.1, whichsuggeststhatconditionalon a
correctly
specifiedmodel,and conditionalon at leastone of
thereis
theinstrumental
variablesbeinga valid instrument,
no evidence to reject the validityof these IVs. We also
and secondtestsforthefirst-order
reporttheArellano-Bond
residuals.
orderserial correlationsin the first-differenced
The teststatisticssuggestthatwe can rejectthenull of no
first-order
serialcorrelation,
butwe cannotrejectthenullof
no second-orderserial correlation(only the latteris a
necessaryconditionforconsistentestimates).
that
Regressionresultsare consistentwiththehypothesis
economicgrowthdecreaseswiththebirthrate.In the first
column,we reporta regressionwith the birthrate, the
five-year
laggedreal percapitaGDP, and timedummiesas
variables.This regressionshows thatthebirth
independent
rate has a negativeeffecton economic growth,and this
effectis significant
at the 10% level.This simpleregression
that
Chinese
suggests
poor
provincesare notconvergingto
and
richones,sinceinitialGDP has a verysmallcoefficient
it is notsignificant
at the 10% level.
variables
Regression1 mayhaveomittedmanyimportant
side of thegrowthequation.We now add
on theright-hand
statisticis Hansen'sJ-statistic,
whichis theminimizedvalue of theGMM
criterion
function.Note thatthetestrelieson theassumptionthatat least
one of the instruments
is valid. For further
discussionsee, forexample,
Hayashi(2000, pp. 227-228, 407, 417).

thesevariablesin column(2). Followingtheliterature

(Levineand Renelt,1992; Temple,1999), thecontrolvariables
rateandtheinvestenrollment
includethesecondary-school
mentshare.We keep a minimumnumberof controlvariteststo
ables hereand leave morecomprehensive
sensitivity
thenextsubsection.
Aftercontrollingfor other variables that affectGDP
growth,it stilldecreaseswiththebirthrate.In column(2),
the coefficientof the variable birthrate is negativeand
oftheeffectmore
at the1% level.The magnitude
significant
than doubled with other variables controlledfor. Some
show
simple calculationsusing the estimatedcoefficients
thatthedeclineof thebirthratehas madea reasonablylarge
to China's economic growth.In the sample
contribution
period(1978-1998), China'sbirthratedecreasedby 1 outof
1,000 everyfive years,which impliesan increaseof the
annual per capita GDP growthrate by 0.9 percentage
or about 11% of the annual growthrateof 8.1%
points,17
thatChina's provincesachievedin the sampleperiod.The
percapitaGDP, thatis,
impliedincreasein thesteady-state
the permanentimprovementof the living standardsof
17A decreaseof thebirthrate one would increasethegrowthrateof
by
periodby 4.5%, wherewe have used the
per capita GDP in thefive-year
and the mean values of the independentvariables
estimatedcoefficients
fortheprediction.This five-year
growthratecan be convertedto a 0.9%
annual growthrate,with a 95% confidenceintervalof (0.004, 0.014),
whichis calculatedfromthedelta method.

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DO HIGH BIRTH RATES HAMPER ECONOMIC GROWTH?

115

Table 3.- GMM Estimatesof the Effectof the Birth Rate on GDP Growth
of LogGDP
Dependentvariable:Firstdifference
GMM
(SYS)
(2)

GMM
(DIF)
(3)

-0.036***
(-3.40)
-0.249*
(-1.85)
-0.174
(-0.67)
0.442
(1.02)

-0.034**
(-2.72)
-0.301
(-1.03)
-0.132
(-0.27)
0.352
(1.31)

GMM
(SYS)
(1)
Birthrate
Five-yearlaggedLogGDP
enrollment
Secondary-school

-0.016*
(-1.82)
-0.023
(-0.31)
0.489**
(2.11)

share
Investment
rate
In-migration
Growthof laborforceshare
ratio
Youthdependency

0.589
(1.44)

Tradeshare

GMM
(SYS)
(4)
-0.027**
(-2.17)
-0.134
(-1.19)
-0.045
(-0.18)
0.579*
(1.89)
1.572
(0.45)
0.0001
(0.68)

Government
spendingshare
Period1983-1988
Period1988-1993
Period1993-1998
restriction
Hansentestof overidentification
(HansenJ-statistics)
(P-value)
testforFirst-order
serialcorrelation
Arellano-Bond
(z-statistics)
(P-value)
serialcorrelation
Second-order
(z-statistics)
(P-value)
Provinces
Observations

GMM
(SYS)
(5)
-0.031**
(-2.33)
-0.293*
(-1.71)
-0.174
(-0.62)
0.438
(1.50)

0.694
(1.49)
9.732*
(1.74)
-0.053
(-0.12)
0.074
(1.44)
0.362***
(4.48)
0.261*
(1.77)

GMM
(SYS)
(6)
-0.027**
(-2.09)
-0.157
(-0.99)
-0.129
(-0.47)
0.551
(0.16)
0.0001
(0.95)
7.912*
(1.91)
0.011
(0.04)
0.097**
(2.24)
0.357***
(5.76)
0.213*
(1.94)

0.095***
(3.19)
0.249***
(6.25)
0.102
(1.43)

0.058
(1.12)
0.348***
(4.67)
0.211
(1.67)

0.089
(0.98)
0.390**
(2.60)
0.290
(1.20)

0.091**
(2.20)
0.349***
(5.75)
0.187**
(2.51)

12.23
0.14

10.48
0.23

4.66
0.46

11.53
0.17

13.02
0.11

12.21
0.14

-2.12
0.03
1.10
0.27
28
112

-1.56
0.11
1.38
0.17
28
111

-1.50
0.13
1.36
0.17
28
83

-1.81
0.07
1.20
0.23
28
111

-1.71
0.09
1.38
0.17
28
111

-1.87
0.06
1.20
0.23
28
111

inparentheses.
robust/-statistics
arereported
levelsof 10,5, and 1%. LogGDP is thelog ofrealpercapitaGDP. All specifications
Notes:Heteroskedasticity
*, **, and *** represent
inthetabletreat
significance
of thebirthrateandthefirst
difference
of five-year
thefirst
difference
estimatethefirst-differenced
difference
of theproportion
laggedLogGDP as endogenousvariables.All specifications
equationswiththefirst
and theten-year,
and twenty-year
of minority
fifteen-year
laggedLogGDP (whenthelags exist)as IVs. FortheSYS-GMM specifications
[columns(1-2) and (4-6)], we also havethreeLogGDP-level
population
difference
as IVs forthelaggedLogGDP on theright-hand
side. We lose one observation
in regressions
2-6 becausethereis one missingvalue forthevariablesecondary-school
equationswiththelaggedfirst
rate(Guangxiprovincefortheperiod1983-1988).
enrollment

Chinese, is 14.3%,18with a 95% confidenceintervalof are biased. They argue that the OLS estimateis biased
(-0.026,0.311).
upward,whiletheFE estimateis biaseddownward,andthus
Withthecontrolvariablesin column(2), thecoefficient theyprovidethe upper and lower bounds forbiases. We
of thelaggedpercapitaGDP becomeslargerin magnitude estimatethesame equationas thatin column(2) usingOLS
The investment
sharein col- and FE estimators.
and is marginally
The OLS estimateof thecoefficient
on
significant.
umn (2) has a strongpositive effecton growth,with a the lagged LogGDP is -0.061, and the FE estimateis
The secondary-school -0.307. We can see thattheDIF-GMM estimate(-0.301)
coefficient.
positiveand significant
at the 10% level.
rateis notsignificant
is very close to the FE estimate,suggestinga potential
enrollment
In the thirdcolumn,we reporta regressionusing the downwardbias withtheDIF-GMM estimate.As a contrast,
DIF-GMM estimator.The estimatedcoefficientof the theSYS-GMM estimateis -0.249, whichcomfortably
lies
laggedGDP is smallerthanthatoftheSYS-GMM estimator betweentheupperand lowerbounds.These resultssuggest
mayindeedbe a betterchoice.
reportedin column (2), suggestingthat the DIF-GMM thattheSYS-GMM estimator
is morelikelyto be biaseddownwardas arguedby
estimator
Bond et al. (2001). Bond et al. (2001) also suggestthatone
B. RobustnessTests
can use theordinary-least-squares
(OLS) and simplefixedtheGMM estimators In thissection,we testthe robustnessof our main estieffect(FE) estimatesto checkwhether
18The
of the steady-state
per capita GDP with
impliedsemielasticity
respectto thebirthrateis -0.036/0.249 = -0.143. Thus, a decrease of
the birthrateby one would increasethe steady-state
per capita GDP by
14.3%.

matesof theeffectof thebirthrateon economicgrowth.We

conductthese tests by includingotherdemographicand
institutionalvariables that may covary with economic
growth.The firstdemographicvariablewe includeis the

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116

THE REVIEW OF ECONOMICS AND STATISTICS

could make our graphicvariablesare endogenousin the same way as the

rate. Omittingin-migration
in-migration
variablescould be endogenousas
IVs invalid.Forexample,ifprovinceswithsmallerminority birthrateis. Institutional
could be endogenousbecause
trade
well.
For
and
attract
from
faster
example,
in-migration provpopulationsgrow
inces withmoreminorities,
and if minoritiesand Chinese foreigncountriesare more likelyto tradewithprovinces
will tend thathave highgrowthpotential.Ideally,we shoulduse IVs
thenin-migration
havean equal chanceto migrate,
to increasethe proportionof minoritiesin the receiving to identifyall these variables,but empirically,it is very
IVs forthem.Nonetheless,the
to findappropriate
provinces.Since migrationin this example is correlated difficult
with both growthand the IV, that is, the proportionof burdenof finding
good IVs in thiscontextis nottoo greatin
in examiningwhether
it in thegrowthregressionwill invali- ourcontext.We are mainlyinterested
minorities,
omitting
of thesevariableswiththebirthratereduces
thecorrelation
date thisIV.
ofgrowthwiththebirthratebya large
Priorresearchhas also shownthatthe populationstruc- thepartialcorrelation
we
find
it
is notthecase.
and
amount,
and
more
the
share
of
labor
force
and
ture,
specifically
extremevaluesof variablesaffect
to
test
whether
Finally,
have
an
effect
on
economic
youthdependencyratio,may
we
have carriedout regressionsthat
our
estimation
results,
growth(Bloom & Williamson,1998; Kelley & Schmidt,
with
extremevalues for the GDP
exclude
observations
2005; and others).Because thesevariablesare also correWe
or theirfirstdifferences.
the
share,
rate,
minority
growth
lated withthe birthrate,includingthemmay reduce the
do
not
find
that
the
results
change
qualitatively.
empirical
explanatory
powerof thebirthrateitself.In fact,it is likely
we do notreporttheseregressions.
thatthroughthese population-structure
variablesthe birth Due to space limitations,
our
To
GMM
summarize,
regressionsshow consistently
rateexertsits effecton growth.
decreases
withthebirthrateforthe
that
economic
growth
Growthregressionsincludingthese demographicvariThis
of
Chinese
findingis robusteven if
sample
provinces.
ables continueto showthatthebirthratehas an independent
and institutional
we
for
a
number
of
control
demographic
effecton economicgrowth.The fourthcolumnof table 3
the
Malthusian
variables.
Our
prediction
findings
support
reportsa GMM regressionwith threenew independent
for
to
economic
that
birth
rates
are
detrimental
growth
high
variables:the in-migration
rate,the growthof labor force
like China.
a
developing
country
share,and youthdependencyratio. Controllingfor these
variables,thebirthratestillhas a negativeand significant
V. Conclusion
coefficient.The magnitudesof the coefficientsand the
of thesteady-state
impliedsensitivity
percapitaGDP to the
In thispaper,we examinetheimpactof thebirthrateon
birthrate are not much different
fromthose of previous economic growthby using a data set of 28 provincesin
regressions.However,none of thesenewlyincludedvari- China. We findthatthebirthratehas a negativeimpacton
ables is significant.
economicgrowth,and thisfindingis robusteven afterwe
The secondset of variablesthatmaycovarywithgrowth controlfora numberof demographicand institutional
variis institutional
or reform
variables.These variablesare from ables. Our findingprovidessome new evidencethatshows
ar- the negative causal effectof population on economic
two relatedliteratures.
The empiricalgrowthliterature
suchas government
size and trademay growth,as assertedby Malthus.
guesthatinstitutions
have an effecton growth(Barro, 1991; Levine & Renelt,
China startedits uniquepopulationcontrolpolicyin the
on China's economicreformsargues late 1970s. Our studyis among the firstto providesome
1992). The literature
thatthe"open-door"policyand marketization
mayhave an evidencethatcan be a basis forevaluatingtheeffectof this
important
positiveeffecton growth(Bao et al., 2002; Jin, populationcontrolpolicy.Whilethebirthcontrolpolicyhas
Qian, and Weingast,2005; Li & Zhou, 2005). To capture manynegativeaspectsforhumanbeings,and theremaybe
theseinstitutional
or reform
we followtheliterature otherpolicies that can controlpopulation,the one-child
effects,
to therapidgrowthof
and includethetradeshareas a percentageof GDP and the policymay indeedhave contributed
the
late
1970s.
since
the
Chinese
a
share
as
a
of
GDP
economy
(as
government
spending
percentage
size and marketization)
as control
measureof government
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