IMF Survey : World to Experience Myriad Formidable Demographic Changes

February 25, 2016

  • Increased longevity boosts age-related spending in much of the world
  • Africa can reap a demographic dividend from a growing working-age population
  • Increasing female workforce participation could offset some problems of aging and shrinking populations

The world is being buffeted by potent and sometimes contradictory demographic changes, all of which pose formidable social, economic, and environmental threats, Harvard professor David E. Bloom writes in the March 2016 issue of Finance & Development magazine.

(photo: Jon Hicks/Corbis)

Crowded escalators in a São Paolo, Brazil, metro station (photo: Jon Hicks/Corbis)

Population shifts

In a broad overview of the global demographic issues explored in the latest issue of the IMF’s quarterly magazine, Bloom identifies a number of pressing problems, including:

• rapid population growth in some developing economies and the changing share of adolescents and young adults in others;

• increasing longevity and population aging, already occurring in advanced economies and soon to be a factor in almost every country;

• urbanization, which brings the benefits of large markets for both labor and goods and services, but also the pressures of environment degradation; and

• migration, which offers economic opportunities to migrants and host countries but faces political and social resistance in both destination and home countries.

Reforms required

None of these problems are insurmountable, according to Bloom. But they will require, among other things, reforms of retirement policy, global immigration policies, better techniques for dealing with population growth, and further improvements in child survival and treatment of chronic disease.

Populations are getting older and women are giving birth to fewer babies in much of the world. This combination of aging and shrinking populations portends large and growing fiscal burdens both in advanced economies, where the problem is already apparent, and in developing economies, some of which are already dealing with the issue. IMF economists Benedict Clements, Kamil Dybczak, and Mauricio Soto write that unless preventive steps are taken, spending on retirement and health care as a percent of GDP could rise to unmanageable levels by the middle of the century or even sooner.

Other articles in the demography cover package explore whether increasing the role of women in the workforce could offset some of the problems of aging and declining populations and how Africa, where the population is still growing, could reap economic benefits if it manages well the so-called demographic dividend that results from a growing working population relative to young and older age groups. Economists Mikael Juselius, of the Bank of Finland, and ElÅ‘d Takáts, of the Bank for International Settlements, find that the greater the share of young and old in the population, the higher the rate of inflation. They argue that the growing proportion of older folks will boost inflation by 3 percentage points within 40 years.

Also in this issue

Rabah Arezki, Frederick van de Ploeg, and Frederik Toscani document a major shift in resource exploration and extraction from high-income regions to emerging market and developing economies. This historic “North” to “South” shift is occasioned by efforts in those economies to open up to foreign investment and improve their institutions—including through more stable governments and stronger rule of law.

The March 2016 issue of F&D also explores the economic effects of the climatological phenomenon known as El Niño—when the temperature of the Pacific Ocean off the coast of South America rises, causing extreme weather in many parts of the globe. Many countries suffer short-term declines in economic activity while others benefit.

IMF economists Davide Furceri and Prakash Loungani find that after countries remove restrictions on capital flows, income inequality often increases. Former Reserve Bank of India Governor Duvvuri Subbarao reflects on the role of communications in central bank policymaking. And in a Straight Talk column, the IMF’s first deputy managing director, David Lipton, says China’s quest for sustainable growth calls for bold fiscal reforms.

The issue also profiles economist David Card, who challenges conventional wisdom on the minimum wage, immigration, and education. The regular feature Currency Notes explores efforts by municipalities and neighborhood organizations to establish local currencies—including a note featuring the late musician David Bowie.

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