Changing Demographics and Economic Growth – IMF F&D
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- Authors: DAVID E BLOOM
- Published: March 1, 2020
Overview
- Author: DAVID E. BLOOM, professor of economics and demography at Harvard University’s T.H. Chan School of Public Health.
- Publication: F&D Magazine, Population 2020, March 2020.
- Core thesis: Demographics—population size, growth, and age structure—are potent drivers of the pace and process of economic growth and development, but they do not unilaterally determine outcomes; economic incentives, policy, institutions, technology, cultural norms, and behavior mediate demographic effects.
Population growth: trends and distributional shifts
- Historical and projected milestones:
- World population: 3 billion in 1960; 6 billion around 2000; projected to surpass 9 billion by 2037.
- Peak annual population growth rates: in excess of 2 percent in the late 1960s; about 1 percent currently; projected to be half that by 2050.
- Challenges of rapid population growth:
- Increased needs for food, clothing, housing, education, and infrastructure.
- Need to absorb sizable cohorts into productive employment.
- Heightened environmental protection demands.
- Distributional shifts:
- Less developed countries: 68 percent of world population in 1950; 84 percent today.
- Nearly all of the nearly 2 billion net additions to world population projected over the next three decades will occur in less developed regions.
- China: 1.44 billion people currently, largest national population.
- India: 1.38 billion currently; projected to be 1.50 billion by the end of this decade, overtaking China (China projected peak 1.46 billion).
- Nigeria and Pakistan projected to surge in population between 2020 and 2050; Nigeria projected to overtake the United States to become the world’s third-most-populous nation.
- Asia: 60 percent share of world population today and 54 percent in 2050.
- Negative population growth projected in 2020–50 for 61 countries and territories currently home to 29 percent of the world’s people; sharpest projected decline is −23 percent for Bulgaria.
Age structure dynamics and the demographic dividend
- Mechanism:
- Fertility and mortality history determine age structure; mortality declines often create baby booms followed by fertility decline, producing large cohorts in peak working and saving ages.
- A rising share of working-age population can enhance per capita productive capacity and create a window for rapid income growth and poverty reduction.
- Risks:
- Failure to generate sufficient jobs for large cohorts of young adults can lead to social, political, and economic instability.
- Dependency ratio dynamics:
- Dependency ratio defined as the inverse of the working-age to non-working-age ratio; measures economic pressure on working-age individuals.
- 1990: dependency ratio in more developed regions 0.68 versus 1.04 in less developed regions.
- 2020: dependency ratio 0.70 in more developed regions and 0.75 in less developed regions.
- 2050 projection: dependency ratio 0.89 in more developed regions and 0.77 in less developed regions.
- Africa is the only region in which this ratio is projected to decline by 2050.
- Countries projected to experience largest gains (2020–2030) in the ratio of working-age to non-working-age populations:
- Nepal, Jordan, Bhutan, and Eswatini.
- Policy implications by demographic stage:
- Countries without appreciable demographic transitions (examples: Chad, the Central African Republic, Somalia, Sierra Leone):
- Policies to catalyze transitions: investment in infant and child survival, expanded vaccine coverage, access to well-provisioned and appropriately staffed primary health care systems.
- Populations with health and survival gains:
- Policies to enable fertility decline: promoting girls’ education; access to reproductive health and family planning services.
- Countries with large working-age shares:
- Policies to realize demographic dividend: support competitive labor and capital markets; equip workers with human capital; build infrastructure; sound macroeconomic management; carefully designed trade policies; good governance.
Global graying: scale, distribution, and consequences
- Scale of aging:
- Expectation to add 1 billion older individuals in the next three to four decades, atop the more than 700 million older people today.
- The 85+ age group projected to surpass half a billion in the next 80 years.
- Country and regional variances:
- Japan: 28 percent of its population 65 and over (currently), triple the world average.
- By 2050, 29 countries and territories will have larger elder shares than Japan has today.
- Republic of Korea projected to reach an elder share of 38.1 percent and median age 56.5 in 2050 (Korea expected to overtake Japan’s median age 54.7).
- Japan’s current median age: 48.4; Africa’s current median age: 19.7.
- Three decades ago: more than three times as many adolescents and young adults (15- to 24-year-olds) as older people; three decades from now these age groups will be roughly on par.
- Income-group dynamics:
- Sharpest growth in numbers of older people will occur in countries currently classified as middle income, which make up 74 percent of the world population.
- Older-population share in middle-income countries is increasing faster than in low- and high-income counterparts.
- Middle-income countries projected to have appreciably greater real incomes when their older-population shares reach comparably elevated levels compared with current high-income countries, contradicting the claim that developing economies are getting old before they get rich.
- Economic and fiscal concerns:
- Potential downward pressure on economic growth from labor and capital shortages and falling asset prices as older cohorts liquidate investments.
- Fiscal stress from rising pension liabilities and health and long-term care costs associated with chronic diseases.
- Offsetting factors: productive nonmarket activities by older people (volunteer work, caregiving).
Policy responses and innovations to address aging
- Fiscal and pension reforms:
- Policy reforms to promote financial sustainability and intergenerational equity of health and pension financing.
- Raising the legal age of retirement to ease fiscal and labor market burdens.
- Pronatalist policies:
- Pronatalist tax incentives are an option for the long term, but their effect on fertility is thus far unproven.
- Health and prevention:
- Increase health systems’ emphasis on early detection and disease prevention (examples: better awareness of benefits of physical activity; subsidization of physical activity).
- Migration and labor supply:
- Relax institutional and economic barriers to international immigration from regions with relatively large working-age populations to alleviate labor shortages.
- Technological and institutional innovations:
- New drugs to slow the process of aging and add healthy years.
- Assistive devices such as robots.
- Institutional innovations: new models of home health care; public transportation systems; urban design; financial instruments.
The bottom line
- Demographic indicators have changed dramatically since the early 1950s and are poised for equally dramatic changes in coming decades.
- Population aging is displacing population growth as the primary demographic focus, but both phenomena will have profound repercussions for indicators and determinants of economic well-being and progress.
- Demographics are not fixed; their economic implications are responsive to policy, institutions, technology, and behavior.
- Adopting a business-as-usual approach to population aging would be irresponsible.
Source: Changing Demographics and Economic Growth – IMF F&D
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