The Demographic Dividend: Evidence from the Indian States

IMF Working Papers, February 1, 2011

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Focus: India as the largest individual contributor to the global demographic transition ahead.
Method: Exploits variation in the age structure of the population across Indian states to identify the demographic dividend.
Main finding: There is a large and significant growth impact of both the level and growth rate of the working age ratio.
Robustness: Result is robust to a variety of empirical strategies, including a correction for inter-state migration.
Attribution: A substantial fraction of the growth acceleration that India has experienced since the 1980s — sometimes ascribed exclusively to economic reforms — is attributable to changes in the country’s age structure.
Projection: The demographic dividend could add about 2 percentage points per annum to India’s per capita GDP growth over the next two decades.
Distributional implication: With the future expansion of the working age ratio concentrated in some of India’s poorest states, income convergence may well speed up.

Identification strategy: Uses inter-state variation in age structure to isolate demographic effects on growth.
Key variables: Level of the working age ratio and growth rate of the working age ratio.
Migration correction: Empirical strategies include adjustments for inter-state migration to ensure robustness of estimated effects.
Comparative interpretation: Findings imply demographic change explains a substantial portion of post-1980s growth acceleration in India, complementing explanations based on economic reforms.

Growth potential: Demographic transition presents a sizable additive effect to per capita GDP growth—quantified as about 2 percentage points per annum over the next two decades.
Spatial targeting: Because the working age expansion is concentrated in poorer states, policy measures that enhance labor market absorption and human capital in these states could accelerate income convergence.
Complementarity with reforms: Demographic dividends should be seen as complementing, not substituting for, structural reforms and policies that improve labor productivity and employment opportunities.