Commentary: Why China continues to rise
In a 2018 paper, Klaus Desmet, Dávid Krisztián Nagy, and Esteban Rossi-Hansberg showed that in a world of restricted cross-country trade and migration, countries with large populations can provide more opportunities to increase economic output through internal trade and specialisation.
The most populous countries are not necessarily the richest today, the authors note, largely because of migration. But if barriers to migration grow high enough, populous countries will outpace smaller countries in innovation, even if the latter are richer.
Because long-run growth is driven by improvements in technology, this translates into a major economic advantage for countries with larger populations.
This outcome highlights just how self-defeating America’s turn inward is: It’s clear that America’s success is thanks to migration and globalisation.
To be sure, China is facing strong demographic headwinds: Its birth rate dropped to a record low in 2020.
But the effects of this decline will take a few decades to have an impact. China’s demographics today give the country a significant advantage over the US in terms of human capital for at least the next 20 years.
Projections of China’s future growth suggest that if China makes the most of this advantage – as it seems poised to do – the US will find it all but impossible to hamper China’s economic progress.
Rather than thwarting China’s ambitions, America’s policies will encourage China to continue hedging its bets, including by rethinking its national-security strategy and shifting more resources to its science and technology sectors.
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