Edited by Donghyun Park, Sang-Hyop Lee and Andrew Mason
Chapter 7: Demographic dividends for India: evidence and implications based on National Transfer Accounts
The missing link in the debate on the impact of population on economic growth is the effect of age structure (Bloom and Williamson, 1998). During the demographic transition from high fertility and high mortality to low fertility and low mortality, the age structure of the population undergoes unprecedented changes from a broad-based pyramid tapering at the top, to a shrinking base with an enlarged middle and a gradually expanding top. The age structure of a population has economic ramifications as children and the elderly consume more than they produce, while those in the prime working ages support not only their own consumption but also that of the economically dependent segments of society. Countries with shrinking numbers of children and large shares of working-age people can raise their rates of economic growth. This is referred to as the first demographic dividend or as the window of economic opportunity (Lee and Mason, 2006) Bloom et al. (2000) and Mason (2001) attributed East Asia’s economic miracle to a major transition in the region’s age structure. Using cross-country panel data, Bloom and Canning (2004) have shown a positive and significant relationship between the growth rate of the share of the working-age population and economic growth, but only if the economy is open. In studies based on Bloom et al.’s (2003) approach, the ratio of the working-age population to total population, labor productivity, human capital, the saving rate, trade policies and other variables determined the long-term growth of per capita income. An important result in these studies is the positive impact of the ratio of the working-age population, which captures the age structure transition. This offers empirical evidence for the positive impact of the demographic transition on economic growth. Further, they concluded that the potential for the demographic dividend can be realized in countries that can provide an environment for economic development. Mason (2006) suggested that each country in the Asia and Pacific region should act now to harvest the first demographic dividend.
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