“Demography is destiny” is an oft-cited phrase that suggests the size, growth, and structure of a nation’s population determines its long-term social, economic, and political fabric. The phrase highlights the role of demographics in shaping many complex challenges and opportunities societies face, including several pertinent to economic growth and development.
Nevertheless, it is an overstatement to say that demography determines all, as it downplays the fact that both demographic trajectories and their development implications are responsive to economic incentives; to policy and institutional reforms; and to changes in technology, cultural norms, and behavior.
The world is undergoing a major demographic upheaval with three key components: population growth, changes in fertility and mortality, and associated changes in population age structure.
The age structure of a population reflects mainly its fertility and mortality history. In high-mortality populations, improved survival tends to occur disproportionately among children. This effectively creates a baby boom. Eventually, the boom ends when fertility abates in response to perceptions of improved child survival and as desired fertility declines with economic development. But as the relatively large baby-boom cohorts proceed through adolescence and into their adult years, the population share at the peak ages for work and saving swells.
This enhances the productive capacity of the economy on a per capita basis and opens a window of opportunity for rapid income growth and poverty reduction. Events of the past decade, ranging from the Arab uprisings to more recent mass protests in Chile and Sudan, also show that countries that fail to generate sufficient jobs for large cohorts of young adults are prone to social, political, and economic instability.
The “demographic dividend” refers to the process through which a changing age structure can spur economic growth. It depends, of course, on several complex factors, including the nature and pace of demographic change, the operation of labor and capital markets, macroeconomic management and trade policies, governance, and human capital accumulation. Nonetheless, the demographic dividend model can account for much variation in past economic performance among different countries and regions (e.g., East Asia vs. Latin America vs. sub-Saharan Africa) and helps identify more- and less-promising country settings for future economic growth. For example, from 2020 to 2030, Nepal, Jordan, Bhutan, and Eswatini are projected to experience the largest gains among countries in the ratios of their working-age to non-working-age populations.
The dependency ratio—the inverse of the working age to non-working-age ratio—measures the economic pressure working-age individuals face to support, in addition to themselves, those who are not of working age. In 1990, the ratio in more developed regions was appreciably lower than in less developed regions (0.68 versus 1.04).
But by 2020, as a result of different patterns of fertility decline and population aging, the ratio had increased to 0.70 in more developed regions and decreased to 0.75 in less developed regions. And by 2050, the dependency ratio is projected to be greater in more developed regions (0.89) than in those that are less developed (0.77). This switch suggests that in the coming decades, demographics will be more favorable to economic well-being in less developed regions than in more developed regions. This will be especially true in Africa, the only region in which this ratio is projected to decline by 2050.
For countries that have yet to experience appreciable demographic transitions (like Chad, the Central African Republic, Somalia, and Sierra Leone), policies are appropriately oriented toward catalyzing those transitions. Such policies include investment that promotes infant and child survival, such as expanded vaccine coverage as well as wider access to well-provisioned and appropriately staffed primary health care systems.
For populations that have experienced health and survival gains, countries could benefit from policies to enable a decline in fertility, such as promoting girls’ education and access to reproductive health and family planning services.
And countries with relatively sizable portions of the population concentrated in the high-work and high-savings part of the life cycle need policies to realize the potential benefits of favorable demographics. Such policies include support for the operation of competitive labor and capital markets, equipping workers with human capital, building infrastructure, sound macroeconomic management, carefully designed trade policies, and good governance. Such policies are always desirable, but a large working-age population share raises the stakes.
In some countries, making investments in these various sets of policies could be challenging, as per capita income is currently lower in real terms than it was in some of today’s advanced economies when they were at a comparable demographic stage, International Monetary Fund writes.