The Effect of the "One Child Policy" and it's Change on the Economic Development of China

In 2015 China has revoked one of the most controversial policies aimed at stimulating the economic growth: "One Child Policy". After more than 30 years of its implementation it has resulted in a fertility decline below the replacement rate and in a rapid population aging. This paper employs a non-altruistic overlapping generations model in order to analyze the long-term impact of One Child Policy revocation on the human capital accumulation, pension system, households' savings and Chinese GDP. The model is calibrated to fit historical data and previous research concerned with intergenerational arrangements. The results suggest that the optimal level of investment in human capital is independent of parents' preferences and parameters of pension system but rather is determined by expected macroeconomic conditions and return on alternative financial instruments. If expectations are optimistic concerning the future capital endowments, strong reaction to OCP revocation will decrease the human capital investment, decrease GDP relative to alternative scenarios and even increase the deficit of pay-as-you-go pension pool.