Quantity or quality: who makes manufacturing stronger?

Abstract

China’s rate of aging population and declining fertility are very rapid. The role of demographic transition in the development of the manufacturing industry remains controversial. We construct a heterogeneous DSGE model that includes demographic dividends to simulate and analyze the impact of demographic transition on the expansion and upgrading of manufacturing industry. Besides, we conduct empirical research using China’s provincial-level panel data from 2003 to 2020. The results reveal that, first, the recession of the first demographic dividend characterized by a decrease in labor supply has suppressed the expansion of manufacturing scale, but promoted structural upgrading; second, the second demographic dividend can promote the growth of output in various manufacturing industries, especially advanced manufacturing; third, receiving the second demographic dividend can offset the negative effect from recession of the first demographic dividend on manufacturing industry. However, the negative impact currently suffered by China’s manufacturing industry cannot be fully compensated for.

Keywords:

• Demographic dividend
• demographic transition
• manufacturing industry
• DSGE model

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Disclosure statement

The authors report there are no competing interests to declare.

Notes

1 The measurement of unit labor cost refers to Fan & Gao (2019).

2 Combination 1 is a negative total labor supply shock of 1 unit and a positive high skilled labor supply shock of 1 unit. Combination 2 is a negative total labor supply shock of 0.5 units and a positive high-skilled labor supply shock of 1.5 units. Combination 3 is a negative total labor supply shock of 1.5 units and a positive high-skilled labor supply shock of 0.5 units.

Additional information

Funding

This research is supported by the Ministry of Education Humanities and Social Sciences Fund Project “Research on the mechanism, impact, and mitigation strategies of digital intelligence technology’s influence on income distribution” (Grant No.23YJA790058).

Notes on contributors

Zheng Li

Zheng Li, Ph.D. in Quantitative Economics, School of Statistics, Tianjin University of Finance and Economics, tutor Zhonglin Bai. Research interests: industrial economy, the theory and application of quantitative economics.

Yan Miao

Yan Miao, graduated from the School of Statistics of Tianjin University of Finance and Economics with a doctorate in quantitative economics. Currently, she is an associate professor of the School of Economics of Tianjin Normal University. Research interests: population economics, macroeconomic fluctuations and policy choices.

Ying Liu

Ying Liu, Master of Economics, School of Economics, Tianjin Normal University, tutor Yan Miao. Research interests: industrial economy, population economics.