Falling Fertility Provides Developing Countries with Opportunities to Reap Benefit of 'Demographic Dividend'

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Tuesday
January 21, 2003

Developing countries can spur economic growth by reducing high fertility rates and enacting policies to improve health, education, and job opportunities, according to a RAND report that sheds new light on the longstanding debate about the effect of population growth on economic development.

Nations that slow population growth create a window of economic opportunity afforded by reducing the proportion of dependent youths and increasing the share of productive, working-age adults. Nations that capitalize on this population change can reap a "demographic dividend" to improve their standard of living, while those that don't may see social and economic conditions worsen.

Those are among the issues highlighted in a RAND report titled "The Demographic Dividend: A New Perspective on the Economic Consequences of Population Change." The report was produced by RAND's Population Matters program, which works to highlight the policy relevance of demographic research.

For decades, experts have debated the impact that population growth has on a nation's economic development.

The RAND report concludes that much of the debate has overlooked a key point: the way a nation's population is structured across age groups is extremely important to its economic well-being.

"Population change exerts a powerful influence on economic well-being," said David Bloom, a Harvard development economist, who co-authored the report. "Economic growth is affected by the rate of population growth, but mainly through accompanying changes in the age structure of the population. Moreover, only those nations that have an appropriate set of policies in place will be able to take full advantage of the opportunity for economic growth provided by slower population growth."

Policies that can help to speed and sustain demographic change include public health programs such as improved sanitation and expanded immunizations, efforts critical to reducing infant mortality rates and sustaining a healthy population. Active family planning programs are essential if fertility is to fall as dramatically as it has in East Asia; there, families averaged six children in 1950, compared with an average of two today.

While these policies can reduce a nation's young dependent population and create a comparatively large working-age population, the benefits of this change are not automatic. Developing nations must improve their educational systems to create a productive workforce, and reform government to improve the business environment, create a more flexible labor force, and encourage openness to trade.

The future may be grim for countries that fail to take actions to capitalize on the demographic dividend, Bloom said. These countries may face trouble as unemployment rises, the social fabric frays, and rising numbers of old people begin to overwhelm available resources.

East Asian nations have had the most success in capturing the demographic dividend. The benefits of a falling birth rate and a burgeoning working-age population account for as much as one-third of the region's economic growth, according to the RAND report.

East Asia's boom generation was successful because it was well educated and benefited from policies that helped create and sustain jobs. Stable government and financial institutions aided economic growth by encouraging workers to save and invest.

By contrast, sub-Saharan Africa is experiencing no substantial changes in fertility., Traditionally large family size persists, with the average mother having six children, even though infant and child mortality has dropped. And the working-age population is being ravaged by HIV/AIDS, another factor contributing to the region's high proportion of youth dependents.

Latin America has undergone a less dramatic fertility decline and has had far less success in increasing economic growth, because it has not had policies that enabled the region to capitalize on demographic changes. The Middle East, North Africa and South Asia are just entering the vital window of opportunity with a growing labor force; how they use this potential demographic dividend will have enormous consequences for their long-run economic performance.

RAND's Population Matters program was created in 1996. The demographic dividend report was supported by a consortium of donors led by the William and Flora Hewlett Foundation, the David and Lucile Packard Foundation, the Rockefeller Foundation, and the United Nations Population Fund.

Other authors of "The Demographic Dividend: A New Perspective on the Economic Consequences of Population Change" are David Canning and Jaypee Sevilla, also faculty members at the Harvard School of Public Health.

Copies of study will be available on RAND's website Tuesday, January 21 at www.rand.org/pubs/monograph_reports/MR1274/. A hard copy (ISBN 0-8330-2926-6) can be requested online from RAND Publications Distribution Services, or by phone (877-584-8642).

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