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ECONOMICPAPERS,VOL.29,NO.3,SEPTEMBER,2010,333341Ageing,LabourForceParticipationandEducation:ComparingtheImplicationsforEconomicGrowthinChinaandIndia111JohnHicks,ParikshitK.BasuandRichardB.SappeyAnageingpopulationwillresult,overthenextfortyyears,inafallinChinaslabourforceasthemoreyouthfulIndianlabourforcecontinuestogrow.How-ever,wefindthatgrowthinoutputpercapitahasbeendominated,inbothcountries,bygrowthinlabourproductivity.Chinasstrongerlabourproductiv-ityperformancehasresulted,untilrecently,fromastrongergrowthintheircapitallabourratio.Now,however,itisthegrowthofChinastotalfactorproductivity,drivenbyamuchstrongerpublicinvestmentineducation,thatkeepsthemahead.TomatchChina,Indiamustincreaseparticipationineducationandintheworkforce,especiallyamongstwomen.Keywords:growth,productivity,education,China,India.1.IntroductionLee(2009)arguesthatUnlikeChina,whosepopulationisageing,morethanhalfofIndiaspopu-lationisunder25.Ifreformscontinue,Indiawillreapasignificantdemographicdividendwellpast2themiddleofthiscentury.Leescommentsreceivelimitedsupportintheacademicliterature;manypredictthatoverthenexttentofifteenyears,Chinasworkingagepopulationwillbegintocontractandthiswilltendtoretardeconomicgrowthinpercapitaterms(seeFeng,2005;FengandMason,2005;GolleyandTyers,2006;NielsenandFang,2007).Australiaisclearlyabenefi-ciaryofgrowthinthesetwoAsiangiants,andbothbusinessandgovernmentalikehaveaninter-estintheimpactofdemographicchangestakingplaceinthesetwocountriesandinthepoliciesofthegovernmentsofChinaandIndiawhichaccompanythesechanges.Moreimportantly,success-fulpolicyactiontomaintainthegrowthmomentumofbotheconomieswillbringhundredsofmillionsofpeopleoutofpoverty(HerdandDougherty,2007).Inthisarticle,weadoptamethodologypreviouslyemployedintheAustraliancontextbyDayandDowrick(2004)toconsidertherelationshipbetweeneconomicgrowthandageing,labour3forceparticipationandlabourproductivityinChinaandIndia.InSection2,wefindthatdemo-graphicchangesarerelativelyunimportantindetermininggrowthinoutputpercapitacomparedtochangesinlabourproductivity.TheproximatecausesofchangesinlabourproductivityareidentifiedinSection3utilisinganincomeaccountingframework,andtheimportanceofeducation1SchoolofBusiness,CharlesSturtUniversity2SeeFengandMason(2005).3GuestandMcDonald(2001)alsousedasimilarapproach.JELclassifications:E2,J1,O11Correspondence:JohnHicks,SchoolofBusiness,CharlesSturtUniversity,PanoramaAvenue,Bathurst2795,Australia.Email:jhicks@csu.edu.au333Ó2010TheEconomicSocietyofAustraliadoi:10.1111/j.1759-3441.2010.00073.x 334ECONOMICPAPERSSEPTEMBERpolicyinthiscontextisdiscussedinSection4.Section5endeavourstoprovidesomepreliminaryestimatesforgrowthingrossdomesticproduct(GDP)percapitainbothcountriesthroughto2050,andSection6concludes.2.AgeingandGDPperCapita2.1Income,FertilityandDependencyTheUnitedNations(UN)definesthedependencyratioasthesumofthepopulationaged0144andthataged65+tothepopulationaged1564.Changesinthedependencyratioareimpactedbychangesinfertility.Initially,adeclineinfertilitymaylowerthedependencyratio,buteventu-ally,asthechildrennotbornwouldhavebeenreachingworkingage,thelaggedimpactofthedeclineinfertilityislikelytoraisethedependencyratio.FertilityhasbeenfallinginbothChinaandIndia.Itisgenerallyagreedthatfallingfertilityratesaredrivenbyincreasesinpercapitaincome(DayandDowrick,2004).ForbothChinaandIndia,thedataconformtothishypothesis.ForChina,itistemptingtoaddthatpartoftheexplanationforthefallinfertilitywastheintro-ductionoftheonechildpolicyin19791980.However,thefertilityratehadbeentrendingdowninChinasincetheearly1950sandthelargestreductionshadoccurredpriortotheintroduc-5tionofthepolicy.Becauseofdecliningfertility,thetotaldependencyratiosinbothChinaandIndiahavebeenfall-ingsincethemid-1970sbutthedeclineinChinaisabouttocometoanendandwilldriveupwardbeyond2010asthepopulationages.ThedownwardfallinIndiawillcontinuelonger,turningupwardbetween2035and2040.Interestingly,itisnotuntilabout2025thatthedependencyratioinIndiafallsbelowthatofChina.2.2TheInfluenceofDependencyonOutputperCapitainChinaandIndiaThedemographicsarethereforesuchthatChinawillhaveanageingpopulationwithahighertotaldependencyratiothanIndia,whichwillhaveasignificantlymoreyouthfulpopulation.Howdoesthisimpactoutputpercapita?DayandDowrick(2004)haveshownthatGDPpercapitacanbedividedintotwocomponentsthatareofrelevancetothechangestakingplaceinbothcountriesoutputperworking-agepersonandthedependencyratio.YYPopWþPopdep¼:ð1ÞPopPopWPopWHere,YistheGDP,Popisthetotalpopulationwhichcomprisesthepopulationofworkingage(PopW),andPopdepisthepopulationwithdependentage.Furthermore,thelastterminEquation1isequalto(1+thedependencyratio).DayandDowrick(2004)furthershowthattheratioofGDPtoworkingagepopulationcanbedecomposedasfollows:YYHLE¼;ð2ÞPopWHEPopWLwhereHindicatestheaggregatehoursworked,EistheemploymentandListhelabourforce.ThetermLPopWisthelabourforceparticipationrate.Becauseofrestrictionsontheavailabilityofconsistentdata,inourempiricalworkwecollapsetheright-handsideofEquation2sothat:YYL¼:ð3ÞPopWLPopW4SeeUN(2009a).5Fordataonfertility,seeUN(2009a)andfordataonincomeseedXEconData(2009a).Foranextendeddiscussionontheimpactofthepolicy,seeFeng(2005).Ó2010TheEconomicSocietyofAustralia 2010POTENTIALFORGROWTHINCHINAANDINDIA335Table1.ContributionstoGrowthinGrossDomesticProduct(GDP)perCapita:ChinaandIndiaGDPpercapitaYLParticipation1+dependency(US$2005PPP)(US$2005PPP)rateratioChina198052310380.8441.6742008551194460.8081.386Averageannualrateofgrowth0.0880.082)0.002)0.007India198087023730.6371.7382008274768530.6091.520Averageannualrateofgrowth0.0420.039)0.002)0.005Sources:dXEconData(2009a);InternationalLabourOrganization(2009).SubstitutingEquation3intoEquation1gives:YYLPopWþPopdep¼:ð4ÞPopLPopWPopWGivenanappropriatedataset,Equation4enablesustoinvestigatetheinfluenceoflabourproduc-6tivity,participationratesandthedependencyratioonGDPpercapitaovertime.AssuggestedbyDayandDowrick(2004),wecanidentifythecontributiontogrowthinGDP7percapitabytakingthelogofbothsidesofEquation4anddifferentiatingwithrespecttotime.Thisgives:GrowthrateofGDPpercapita¼growthrateofoutputperlabourforcememberþgrowthrateoftheparticipationrategrowthrateofð1þdependencyratioÞ:ð5ÞTable1presents,for1980and2008,GDPpercapitameasuredinUS$2005atpurchasingpowerparity(PPP)andthecomponentsidentifiedontheright-handsideofEquation5forbothChinaandIndia.Italsoprovidesgrowthestimatesinthesevariablesovertheperiod.AverageannualgrowthinGDPpercapitainChinahasbeenalmostdoublethatforIndia.GrowthinGDPpercapitainbothcountrieshasbeenalmostentirelybecauseofthegrowthinYL.Changesintheparticipationratehadaverysmallnegativeimpact.Changesinthedependencyratio(fallsinbothcases)andcontributedamiserly0.7percenttothegrowthrateofpercapitaGDPinChinaand0.5percentinIndia.Onthebasisofthesedata,weconcludethatchangesinthedependencyratiohave,todate,hadarelativelyminorimpactonpercapitaoutputinChinaandIndia.Whatofthefuture?Ifwecanobtainfutureestimatesforthevariablesontheright-handsideofEquation5,wecanusethemtoderivepredictionsforthegrowthofoutputpercapitainbothcountries.2.3PredictingGrowthRatesoftheDependencyRatioandtheParticipationRateTheUN(2009a)providespredictionsforthedependencyratioandweusethesewithoutadjust-ment.6Strictlyspeaking,YLcanonlyroughlyapproximatelabourproductivitywhichismorecorrectlydefinedasYH.However,dataonhoursofworkisnotavailableforeitherChinaorIndia.AvailabledataforothercountriesrevealsonlyminordiscrepanciesinthegrowthratesofYEandYH(seeTheConferenceBoard,2009).Wefurtherassumethattheimpactofchangingunemploymentratesissmall.7SeeHaeusslerandPaul(1999).Ó2010TheEconomicSocietyofAustralia 336ECONOMICPAPERSSEPTEMBERTable2.FemaleLabourForceParticipation:ChinaandIndiaYearChinaIndiaChina,India,China,India,1524years1524years2564years2564years19800.7690.3620.8640.3410.7240.37319850.7770.3640.8270.3250.7510.38419900.7920.3690.7920.3080.7910.40019950.7970.3720.7560.2910.8110.41120000.7920.3600.7020.2680.8190.40320050.7730.3580.6400.2470.8150.40820080.7690.3560.6400.2390.8090.407Source:InternationalLabourOrganization(2009).Participationratesarelikelytobelessstablethanthebirthanddeathratesrequiredtocalculatedependencyratios,but,inbothcountries,asteadypatternofdeclinedoesseemtohavebeenestablished.However,wedonotruleoutchangesintheestablishedpatternsparticularlywithreferencetowomen.Table2presentsdataforfemalelabourforceparticipationinbothChinaandIndia.Forallgroupsreported,femalelabourforceparticipationinChinaismuchhigherthaninIndia.However,themostimportantandthemostdifficultvariabletopredictisthegrowthofYL.3.ExplainingGrowthinYLAccountingforeconomicgrowthusuallycommenceswiththeassumptionthatthenationalecon-omycanberepresentedbyaproductionfunction.Acommonly-usedproductionfunctioninwhichnationalincome(Y)isafunctionoflabour(L),capital(K)andtotalfactorproductivity(A)takes8theform:Y¼AKaL1a:ð6ÞDividingEquation6throughbyL,takingthelogofbothsidesanddifferentiatingwithrespecttotimeallowsustoshowthat:dðY=LÞdAdðK=LÞ¼þa:ð7aÞY=LAK=LThatis,GrowthrateofY=L¼growthrateoftotalfactorproductivity(henceforth,TFP)þatimesthegrowthrateofthecapital/labourratio:ð7bÞPursuingthisapproachwouldnormallyinvolvetheestimationoftheproductionfunctiontodeterminethevalueofa.However,Holtz(2008)foundthat[e]stimationofaneconomy-wideproductionfunctionforChinain19782002yieldsinsignificantcoefficients….Anumberofwritershavechosen,therefore,toundertakeananalysisbyassumingvaluesfora.ForChinaandIndia,BosworthandCollins(2008)undertakeagrowthaccountinganalysisfortheperiod19782004.HerdandDougherty(2007)undertakeasimilaranalysisfortheperiod19502005.Weareabletoextendthegrowthaccountinganalysisto2008inTable3.ThereisnoofficialfixedcapitalseriesforChina,soweutiliseanestimatefor1992providedbyHoltz(2008)anddevelopourownseriesbyusingofficialdataonfixedgrosscapitalformationandassumingan8See,forexample,Mankiw(2003).Ó2010TheEconomicSocietyofAustralia 2010POTENTIALFORGROWTHINCHINAANDINDIA337Table3.ContributiontoGrowthinYL(AnnualAverage)ChinaYLaKLTFPChina199320040.084(0.085)0.040(0.042)0.043(0.042)200420080.0990.0290.070India19931993200320040.042(0.046)0.014(0.018)0.028(0.027)20032004200720080.0660.0260.040Note:Estimatesfor19932004byBosworthandCollins(2008).Sources:dXEconData(2009a,b);InternationalLabourOrganization(2009);Holtz(2008).9annualaveragedepreciationallowanceof0.05.AssuggestedbyBosworthandCollins(2008),weadopt0.40astheestimateforainbothcountries.Ourresultsfortheperiod19932004areinkeepingwithpreviousfindings(thefiguresinbracketsareBosworthandCollinsestimateswitheducationandTFPcombinedfortheperiod19932004).HerdandDougherty(2007)hadlowerfiguresforTFPinbothcases,butmuchofthiscanbeattrib-utedtoachoiceofaof0.5.OurresultsindicatethatYLhadbeengrowingfasterinChinauptothemidpointofthisdecadelargelybecauseofthedifferential,inChinasfavour,inthegrowthofKL.ThedifferentialingrowthofTFP,whereChinaalsoheldthelead,wasimportantbutlessso.Since2005,how-ever,thereseemstohavebeenachange.IndiaappearstohavebeenabletoraisethegrowthrateofKLwhileChinahasseenafallinthegrowthofKL.Incontrast,whilebothcountrieshavebeenabletoimprovethegrowthrateofTFP,theimprovementinChinahasfaroutstrippedthatinIndiatothepointwherethedifferentialisnowthemajorcontributortoChinasgrowthinYLstayingaheadofIndias.WhatisdrivingtheobservedincreaseinTFPinChinaand,toamuchlesserextent,India?Anumberoffactorshavebeensuggestedincluding:technicalprogress;governmentpolicyandpoliticalinstability(BosworthandCollins,2008);thedeclineintheproportionofworkersinagriculture(Holtz,2008)andongoingurbanisationwithbothchangesbeingmorepronouncedinChinathaninIndia;andtheopeninguptoforeigntradeandmovementoffirmsfromthepublicsectortotheprivatesector(HerdandDougherty,2007).However,itisbeyondthescopeofthisarticletogivedetailedconsiderationtoallthesuspectedcauses.Instead,wefocusononeimprovementsineducation.AsBargainetal.(2009)pointout,bothChinaandIndiaarechallengedbytheneedtosus-tainthesupplyofskilledandsemi-skilledlabourtotheirrapidlygrowingindustriesandtheanswertothischallengeliesinthepastsuccessandfutureprospectsoftheirrespectiveeducationpolicies.4.AssessmentoftheRoleofEducationGrowthineducationinChinainallareashasbeenamarkedphenomenonoftheearlypartofthetwenty-firstcentury,afactrecognisedbyHoltz(2008).Aslateas1999,datafromtheUN(2009b)indicatedthatpublicexpenditureoneducationasaproportionofgrossnationalincome(GNI)wasmorethantwiceashighinIndiaasinChinaandatthistimeexpenditurepercapitainIndiaexceededthatinChina.However,inarelativelyshortperiod,significantchangesbegantotakeplace.Between1999and2005,budgetedgovernmentexpenditureoneducationinChina10increasedbynearly115percentinrealterms.ThisraisedtheeducationexpendituretoGNIratioinChinaatatimewhenthatforIndiawasfallingand,althoughIndiasratiowasstillslightlyhigherin2005,themuchgreatergrowthoftheChineseeconomysawestimatesofgovernmenteducationexpenditurepercapitarisewellabovethatforIndia.9HerdandDougherty(2007)arguethatthechoiceofaninitialcapitalstockfigureandofadepreciationratearenotcriticalissues.10CalculatedfromdatainNationalBureauofStatisticsChina(NBSC,2008).Ó2010TheEconomicSocietyofAustralia 338ECONOMICPAPERSSEPTEMBERAsaconsequenceofthegreaterlevelofspendinginChina,coverageofeducationatalllevelsgrewmorestronglythanwasthecaseforIndia.Attheprimarylevelcoverageinbothcountriesisnowvirtuallyuniversal.However,thequalityofprimaryeducation,asreflectedinpupilteacherratios,appearstobesuperiorinChinawheretheratiohasfallenoverthelastdecadeto17.7in112007,comparedwithIndiawheretheratiohasrisenfrom35.4in1999to40.2in2004.Further,grossenrolmentratiosinsecondaryeducationgrewmuchmorestronglyinChinathaninIndiabetween1999and2006particularlyforwomen.Atthetertiarylevel,Indiahasdonewelltoincreasethenumberoftertiaryenrolmentsbetween2000and2006bynearly37percentand,overthesameperiod,theratioofpersonsundertakingtertiaryeducationtothetertiaryschoolage12populationfrom9.6percentto11.8percent.ButChinastertiaryenrolmentsoverthesameperiodhaveincreasedbyover200percentandtheratioofpersonsundertakingtertiaryeducationtothetertiaryschoolagepopulationrosefromlessthan8percent(lowerthanIndiaatthesametime)toover21percent(notfarshortofdoubletheIndianratio).ForChina,theimportanceofeducationincontributingtoeconomicgrowthwashighlightedbytheworkofHoltz(2008).HearguedthatwhentheshareoflabourinGDPwasrelativelyconstant,realGDPgrowthissimplythesumofrealwagegrowthandlaborgrowth.Realwages,heargued,wereafunctionofthequantityoflabour(known)andthequalityoflabourwhichhearguedcouldbebasedonknowneducationaloutcomes.Hewasabletoestablishanempiricalrelationshipbetweenrealwagegrowthandeducation.OthershavelookedattherelationshipbetweenreturntolabourandeducationforbothChinaandIndia.Bargainetal.(2009)examinedtherelationshipbetweenaveragewageandeducationforsamplesdrawnoveraperiodfrom1987to2004andconcludedthatthemorerapidgrowthofwagesinChinarelativetoIndiawaslargelyexplainedbytheincreaseinaverageeducationlevelsinChinarelativetoIndia.Onthebasisofthedatapresentedbefore,weconcludethatthepopulationsofbothcountrieshavebecomeincreasinglybettereducated,butthattherateofimprovementinChinahasbeenvastlysuperiortothatofIndia(especiallyforwomen).WethereforearguethatChinaseducationpolicieshavehadamajorimpactonTFPand,inturn,YLandGDPpercapita.5.AssessingLikelyGrowthPathsOverthecomingdecade,iftheseachievementsineducationaremaintained(andevenimproved),theimpactonTFPwillbesignificantinbothcountries(albeitmuchgreaterinChina).Ofcourse,improvementsineducationalattainmentcannotcontinueindefinitelyandmustslowastheaver-agelevelofeducationinthepopulation(andworkforce)rises.ThisslowingwilloccurinChinabeforeitdoesinIndiabecauseChinaismuchmoreadvancedintheeducationofitspopulation.ButeventhismaydolittletoadvantageIndiaoverChinaintermsofproductivitygrowthintheforeseeablefuture.ThisisbecauseChinasstockofhumancapital(resultingfromitssuperiorinvestmentineducation)willbemuchgreaterthanIndias,anditwillpermit,asarguedbyDayandDowrick(2004),amorerapidtechnologicalprogressinChinathanwillbepossibleinIndia.Incontrast,anumberofwritershaveindicatedthatChinamustacceptaslowingintherateofgrowthofcapitalstockinthenearfuturewhichwillimply(probablyeveninthefaceofafalling13labourforce)adeclineinKL.ChinasproblemisthatcontinuedgrowthofcapitalrequiresanevengreaterproportionofGDPtobedevotedtoinvestmentand,itisargued,thisratioisalreadyatextraordinarilyhighlevels.Certainly,giventheoutcomeoverthelastfewyearsasreportedinTable3,growthinKLinChinahasfallenawaywhilstinIndiaithasaccelerated.11SeeUN(2009b).NotethatdatadrawnfromthissourceforChinaincludesdataforChina,HongKongSpecialAdministrativeRegionofChinaandMacaoSpecialAdministrativeRegionofChina.12Asnotedbefore,thedataextendtoareasbeyondmainlandChina.However,thedataareusedbecausethemethodologyofcollectionandpresentationisconsistentwiththatfromIndia.DatatakendirectlyfromNBSC(2008),whichexcludesthenon-mainlanddata,confirmsthatenrolmentsintertiaryeducationhaverisenbyover200percentduringthisperiod.13See,forexample,HerdandDougherty(2007)andYongding(2009).Ó2010TheEconomicSocietyofAustralia 2010POTENTIALFORGROWTHINCHINAANDINDIA339Table4.PredictionsofGrowthinGrossDomesticProduct(GDP)PerCapita:ChinaandIndia(from2008)GDPpercapitaYLParticipation1+dependencyUS$2005PPPrateratioChina202519,53136,1010.7901.4602050120,894259,2810.7601.630Averageannualrateofgrowth0.0760.082)0.0020.004India2025528213,0470.5951.470205013,09033,6310.5721.470Averageannualrateofgrowth0.0380.039)0.002)0.001àChina202518,90234,9390.7901.460205080,511172,6710.7601.630Averageannualrateofgrowth0.0660.072)0.0020.004àIndia202510,97223,0410.7001.470205085,877157,7990.8001.470Averageannualrateofgrowth0.0850.0780.007)0.001àNotes:Basedonextrapolationofaverageannualratesofgrowthfortheperiod19802008.Basedonadjustmentsasdiscussedinthetext.Sources:dxEconData(2009a),UnitedNations(2009a),InternationalLabourOrganization(2009).InTable4,ournaı¨vebasescenarioassumesthattheaverageannualratesofgrowthforthevariablesinthetableovertheperiod19802008canbeextrapolatedintothefuture.Onceagain,therelativeageingofChinaspopulationdoesnotappeartohaveasignificantimpactwiththeassumedvaluesofgrowthinYLdominatingtheresults.Suchextrapolationprovidesaprecariousforecastespeciallyaswemovefurtherintothefuture.However,itisinterestingtonotethatourresultsforChinaarequiteconsistentwithHoltzsmoresophisticatedforecasts.HepredictedanaverageannualrateofgrowthinrealGDPintheperiod20002025of9.07percent(upperesti-mate).ThiswouldimplyaGDPpercapitaatPPPof$US20,000,comparedtoournaı¨veestimateofjustover$US19,000inTable4.AsHoltzmadehisestimates,furtherdataonGDPhasbecomeavailablewhichindicatethathisestimatesaretrackingwell.Forexample,theactualoutcomein2008forGDPpercapitaatPPPwas$US5,551,comparedwith$US5,082utilisingHoltzsprojec-tions.Thus,itappearsthathishigherpredictionsareconsistentwithournaı¨veestimateandwithactualoutcomes.However,moreimportantly,allofhisfindingsprovideconfirmationthatlabourproductivityinChinawillcontinuetogrowthroughthefirstquarterofthiscenturyandthatthisgrowthwillbedrivenbyeducation.TotheextentthateducationisasignificantdriverofthegrowthinTFPexperiencedrecentlyinChina,ourresultsinTable3areconsistentwithHoltzspredictionsanditisconceivablethatincreasingTFPgrowthrateswillmorethanoffsetfallinggrowthinKL.LabourproductivitywillgrowinIndiaalso,butournaı¨vepredictionssuggestthatthisgrowth(plusthedemographicdividend)willbeinsufficienttobridgethegapinGDPpercapitawithChina.Isthisassumptionjustified?Table3suggestscautionhere.GrowthinKLhasstartedtoriseinIndiaandisnowmatchingChina.IndiascapacitytopushgrowthinKLstillhigherhasbeenrecognisedbyHerdandDougherty(2007).Indiaalsohasthepotentialtoraiseitseducationalperformance.TheforegoinganalysissupportsourconclusionregardingtherelativeratesofgrowthofoutputpercapitaforChinaandIndiato2025.Itisprobablethatthegapwillnotnarrowoverthisperiodandmayevenincrease.However,beyond2025,IndiashouldbeinapositiontomakeupsomegroundonChinaifnotactuallyequallingtheoutputpercapitaperformanceoftheChineseeconomy.ThesecondsetofdatainTable4demonstrateswhy.Inthistable,wehavemadetheÓ2010TheEconomicSocietyofAustralia 340ECONOMICPAPERSSEPTEMBERfollowingmodifications.First,wehaveassumedthatChinawillnotbeabletomaintainitscurrentrateofgrowthinYLbecauseof(i)theexpectedfallinKLasthegrowthrateofcapitaldeclines(althoughitshouldbekeptinmindthatthelabourforcewillalsobefallingoverthisperiod,counteractingthedeclineincapitalgrowth);and(ii)growthinTFPisassumedtoeventuallyfall,althoughChinaseducationlevelsstillhavealongwaytogotocatchuptothoseofWesterneconomiessuchastheUnitedStates(seeHoltz,2008).Incalculatingthedatapresentedinthetable,growthinYLisassumedtograduallyfallbackto6.5percentinChina.ForIndia,wehaveassumedcontinuedgrowthinKLandTFPwhichwillgraduallyraisethegrowthrateofYLto8percent.Inthecircumstances,suchpredictionsarefeasible.Holtz(2008)comparedChinasrecentgrowthperformancewiththeearlier,similarperformancesofKoreaandJapan,andarguedthatChinanotonlyseemedtobeonasimilarpathbutwasstillintheearlystagesofsuch14transitiongivingChinaafurther2030yearsofhighgrowth.IfthisistrueforChina,itmustalsobetrueforIndia,whichLiandZhang(2008)arguelagstenyearsbehindChinaintermsofcomparisonswithKoreaandJapan.Furthermore,theypointoutthatproductivitytendstogrowfasterinmanufacturingthanintheeconomyasawholeandthat,therefore,policyfocusinIndiaondevelopingservicesmayhaveretardedproductivitygrowthinthatcountrywhichwillnowbeunleashedasgreateremphasisisgiventomanufacturing.Furthermore,weassumethatparticipationratesinIndiawillriseto80percent.Thisisfarmorespeculativeand,inreality,willrequireapolicy-inducedculturalchange.ThecombinedeffectofthesechangesinbothcountrieswouldbetoseepercapitaoutputinIndiamatchpercapitaoutputinChinaby2050.6.ConclusionsThedataclearlyindicatethattheChinesepopulationisageingrelativetothatofIndia.How-ever,wefindthattheimpactofthischangeintheageprofileofthetwocountriesonGDPpercapitais,historicallyandforthefuture,trivialrelativetotheimpactofotherfactors.ForChina,maintainingtherateofgrowthofproductivityiscrucial.Chinahaslittlefurthertogainfromincreasesinlabourforceparticipationasparticipationratesarealreadyveryhighforbothmenandwomen.OurexaminationofchangesineducationinChinaindicatedthatgrowthinthissectoriswellunderwayhavingtakenoffinthelate1990s.Chinaslabourproductivityhasbenefitedandwillcontinuetobenefitfromthisinvestmentineducationformanyyearsintothefuturebothastheaveragelevelofeducationofthepopulationcontinuestoriseand,whenthisriseinevitablyslows,fromagreatlyenhancedstockofhumancapitalthatwillpresagetechnologicalprogressatalevelthatwillkeepChinasproductivityclimbingwellbeyondourlifetimes.Indiaisacountrywithgreatgrowthpotentialbeyondthelevelsitisachievingnow.However,therelative(comparedtoChina)youthfulnessofitspopulationwillbeunimportantinfulfillingthispotential.UnlikeChina,ratherIndiahassignificantpotentialtoraiselabourforceparticipationratesespeciallyamongstwomen.Unfortunately,thereislittleevidenceinthedatathatsuchachangeisinthepipelineasfemalelabourforceparticipationstilllagswellbehindtheirmalecoun-terpartsandtheirsistersinWesterneconomies(andChina).Further,whilsteducationisdevelop-inginIndia,itisnotyetonthesamescaleasthegrowthofeducationinChina.Intheforeseeablefuture(to2025),Indiaslabourproductivitygrowthwillbelargelydependentonincreases(nowstartingtoemerge)inKLand,toalesserextent,TFPgrowth.However,itisunlikelythatgrowthinIndiaslabourproductivitywillexceedthatinChinauntilwellafter2025andeventhen,itisunlikelytooccurunlessactionistakentosubstantiallyraisethedevelopmentoftheeducationsys-temand,inparticular,increasefemaleparticipationineducationatalllevels.Onlythen,andtogetherwithariseinworkforceparticipationratestolevelscommensuratewithChina,willgrowthofoutputpercapitaconvergewiththatforChina.14Peng(2008)arguesthatgrowthinChinawillfallbacktoaround4percentbutheholdsproductivityfixedat3percent.Ó2010TheEconomicSocietyofAustralia 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