07-12-2012, 12:35 PM
A New Perspective on the Economic Consequences of Population Change
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INTRODUCTION
For decades, economists and social thinkers have debated the influence
of population change on economic growth. Three alternative
positions define this debate: Population growth either (1) restricts,
(2) promotes, or (3) is independent of economic growth. Proponents
of each explanation can find evidence to support their cases. All of
these explanations, however, focus on population size and population
growth. In recent years, however, the debate has given insufficient
attention to a critical issue: the age structure of the population
(that is, the way in which the population is distributed across different
age groups), which can change dramatically as fertility and mortality
rates change.
Because people’s economic behavior and needs vary at different
stages of life, changes in a country’s age structure can have significant
effects on its economic performance. Nations with a high proportion
of children are likely to devote a high proportion of resources
to their care, which tends to depress the pace of economic growth.
By contrast, if most of a nation’s population falls within the working
ages, the added productivity of this group can produce a
“demographic dividend” of economic growth, assuming that policies
to take advantage of this are in place. In fact, the combined effect of
this large working-age population and health, family, labor, financial,
and human capital policies can effect virtuous cycles of wealth creation.
THE DEMOGRAPHIC TRANSITION AND THE
“DEMOGRAPHIC DIVIDEND”
The relationship between population change and economic growth
has taken on added salience in recent years because of demographic
trends in the developing world. At varying rates and times since
World War II, developing countries have been undergoing a demographic
transition, from high to low rates of mortality and fertility.
This transition is producing a “boom” generation—a generation that
is larger than those immediately before and after it—that is gradually
working its way through nations’ age structures. The East Asian nations
were at the forefront of this transition; other regions, including
Latin America, began their transitions later, in the 1960s and ’70s. Yet
1The text, tables, and figures for this paper draw heavily on data from a recent CDROM
published by the United Nations (United Nations, 2001). Unless otherwise
noted, we use the UN’s “medium variant” for all data. The UN’s methodology has
been criticized for its reliance on the assumption that all countries will converge to a
fertility rate of 2.1 children per woman. The concern here is that this suggests fertility
will rise in quite a few countries where the total fertility rate is currently below the replacement
level of 2.1. Regardless of the merits of this critique, we note that most of
the results presented in this paper are qualitatively insensitive to the difference between
the “medium-” and “low-fertility” variants of the data.
THE ESSENTIAL POLICY ENVIRONMENT
Nations undergoing this transition have an opportunity to capitalize
on the demographic dividend offered by the maturing of formerly
young populations. The demographic dividend is not, however, automatic.
Given the right kind of policy environment, this demographic
dividend can help to produce a sustained period of economic
growth, as it did in several East Asian economies. The critical
policy areas include
• public health
• family planning
• education
• economic policies that promote labor-market flexibility,
openness to trade, and savings
Policymakers in developing countries have a window of opportunity
for exploiting the maturation of previously young populations.
Policymakers should consider how to maximize and capture this
dividend by accelerating the demographic transition, and allowing
extra labor to be absorbed productively in the market. Finally, policymakers
must plan for the future health care and pension-income
needs of this baby-boom generation when it ages. The demographic
transition offers policymakers a window of opportunity. Seizing it
could prove vital to the economic and social development of their
countries.