The 'Demographic Dividend'1) The Demographic Transition and the Demographic Dividend.The global human population has grown massively during the last three centuries. This growth has been caused by various factors such as changes in modes of production, improvements in hygiene and advances in medicine. In the 'industrialised' or 'developed' world, during this period of growth, national populations have largely completed going through what is called the 'demographic transition' : the transition from a largely rural agrarian society with high fertility and mortality rates, to a predominantly urban industrial society with low fertility and mortality rates. While there are differences between industrial nations in the details of this transition, generally speaking, the change began with a large drop in mortality rate and only much later did fertility rate decline, allowing a massive population explosion (see the profile of the demographic transition given on our Population Trends page). Then with the later decline in fertility rate, the population growth slowed down and has or will soon cease (I ignore here the effect of possible high future immigration). However, in France , where fertility declined relatively early, there was no big time gap between the onset of mortality decline and the onset of fertility decline. Consequently, the demographic transition profile was low and flat. It is generally hoped that developing countries will all go through the same process of transition and emerge as populations with low mortality and fertility; but there is no guarantee that this will always happen. The extent that such countries have already moved through the demographic transition varies considerably from country to country and region to region. Furthermore, in some developing countries, during the phase when dearth rate declined dramatically, birth rates actually increased for some time. The demographic transition sees a very interesting change in the age composition of the population. These changes can be visualised using what are called 'age pyramids'. In such pyramids, a population is divided into 5–year age groups, separating males from females:
Initially in the demographic transition there is a rapid rise in the younger age groups (babies and children). Later, as these persons grow older, the working age population comes to be a much larger proportion of the total population. Finally, as we see in Britain in recent times, the elderly population comes to be a larger component of the total population than in earlier times. The diagram shows age pyramids for early, intermediate and end stages of the demographic transition. Of course, the transition between these stages is gradual. Now an economy depends on its workforce, so it depends largely on those people who are in the age groups 15–60; and while all members of the population are consumers, children and old people need to be supported by the working age population. However it should be remembered that in agricultural societies children give a lot of help to their parents, and in modern industrialised societies older people may help the economy by looking after children or continuing to work. If you look at the age pyramids given above, you will see that nations which are in the middle part of the demographic transition are potentially in a particularly favourable position as regards the economy, because they have a relatively large working age population. This situation however is transitory – such populations will change to the type in the right pyramid – a reduced proportion of working age people and an enlarged proportion of elderly people. Countries in the middle part of the transition therefore have what has been termed a 'demographic gift' or 'demographic dividend', which they should exploit while it lasts. So goes the theory. The concept of the demographic dividend is explained more fully in D'Adamo (2004) and Williamson (2001). 2) The East Asian success storyWell, how have things been going, economically speaking, in the developing nations? There is much variation. In terms of regions, there is a big contrast between sub–Saharan Africa (generally not going well) and East Asia (usually regarded as a success story). We now explore developments in East Asian countries between 1960 and 1990. This account is based primarily on the reports of Mason (2003) and Williamson (ibid) and primarily concerns Japan, South Korea, Taiwan, Singapore, Thailand and Indonesia. We may summarise the demographic situation as follows:
Concomitant with these demographic trends, there has been massive economic growth. Most East Asian countries experienced annual growth rates in per capita GDP markedly in excess of that in the USA. This should be viewed in the context of studies of economic growth in 78 countries across the world dealt with by Williamson (ibid) and the differences between countries in how far they have progressed through the demographic transition. Williamson concludes, as one might perhaps expect, that where the growth rate of the economically active sector of the population exceeds the total population growth rate, GDP per capita growth rates are greater than when the population growth rate exceeds the growth rate of the economically active sector of the population. Further while generally growth of the working age population has had a powerful positive effect on GDP per capita growth, growth of the total population has had a powerful negative impact. Mason makes use of the 'economic support ratio’ to illustrate the changing size of the working–age population relative to the dependent population (those who are either too young or too old to work). This particular ratio measures the working population relative to the consuming population. Mason refines the ratio to incorporate age variation in productivity and consumption. In the numerator, the population in each age group is weighted by the average productivity of workers in that age group. In the denominator, allowance is made for variation in consumption needs, again by using weights. Mason uses a consumer weight of 0.5 for children aged 0 – 14 and a weight of one for all other ages. Mason shows that the economic support ratio for Southeast Asia fell during the 1950’s and 1960’s. This was the period of the first stage of the demographic transition, illustrated in the first (left) diagram above. Then beginning in 1970 the economic support ratio rose rapidly, and is projected to continue to rise for some time to come. This corresponds to the second phase of the demographic transition illustrated by the second (middle) diagram above. There were several, interacting reasons for the East Asian economic success story:
This account of change in East Asia is a general one. The picture is of an economic success story, partly brought about by a successful exploitation of the demographic dividend. There was however, much variation between countries in the various trends:
What general conclusions does Mason draw from his analysis? He judges that fears about the adverse development impact of population growth per se were probably exaggerated. “That population policies and programmes were a success in East Asia is an inescapable conclusion. Commitments to reducing fertility rates of childbearing and slowing population growth rates were followed by unprecedented declines in fertility. Rapid social and economic development drove the region’s demographic transformation, but government action accelerated population change and economic development”. End Note. The context of the economic miracleIt is important in considering the reports on which the above account is based, to note the limited overall scope of the enquiries. The impacts of population and economic growth on the environment are largely ignored. The economic success story alone, gives a very one–sided impression of the changes in the overall condition of East Asian countries.The question springs to mind. Are present economic trends sustainable? More generally, the failure to take on board the environmental effects of economic activity is a major weakness in much economic analysis. And then we need to consider the changing social conditions in the East Asian countries. The book by Amy Chua discussed on our Other Literature page should cause us to pause for thought. References D'Adamo, P. (2004). Understanding the demographic dividend. © copyright J.F.Barker, June 2004. |
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