Syndicate content

Add new comment

Submitted by Anton Dobronogov on

Interesting piece indeed, Wolfgang. You are certainly right that when the first window of demographic opportunity becomes available, it must be accompanied by adequate policies if it is to be captured to its fullest extent. East and Southeast Asian countries stand apart from the rest of the world because of their extremely fast fertility transitions. In 1960, South Korea, Hong Kong, Singapore, and Thailand had total fertility rates (TFR) greater than or equal to five children per woman (and higher than six in Thailand). In 2010, all these countries had TFRs lower than replacement level (2.1 children per woman), and most of them had already reached such low levels in the 1990s. During the same time, these countries benefited from spectacular economic growth rates and were dubbed the Asian Tigers. Public authorities in Asia seized the opportunity. They complemented demographic changes with sound policies facilitating public and private investment in human capital. The economic policies of the Asian Tigers varied widely from one country to another. Some elements, such as sound macroeconomic management, were common, but others factors, such as degree of the government's intervention in the economy, were different (Hong Kong's laissez-faire vs. Singapore's more proactive stance is a classic example). What was, in my view, common is that all these countries converged during the demographic transition towards the institutional frontier of the developed world (roughly speaking, the norms of the OECD countries), and this was most conducive to economic growth. For example, China's institutions are nowadays more similar to institutions of any OECD country than they were 40 years ago under Mao's rule, even though they are still quite different from institutions of these countries. The Asian Tigers were probably converging to different points on that frontier, having chosen different convergence paths. The fact that they were doing so during the period of demographic dividend resulted in outcomes larger than the simple sum of the demographic dividend and the "institutional convergence dividend.”

What are specific policy areas important for maximizing the demographic dividend? The dividend can work in three ways: when share of working-age people in the population increases, any growth in the gross domestic product (GDP) per worker may result in higher growth in GDP per capita; savings rate may go up as more people of working age also means more savers; and investments in human capital per child may increase because the number of child dependents per worker goes down. Hence, first, macroeconomic policies and business environment need to be improved to create incentives for investing larger domestic savings as well as foreign savings into economy, and creating more jobs by doing so. Second, the financial sector needs to be developed to provide intermediation of savings into investments. Third, sensible labor laws need to be put in place to encourage formal employment, including the laws on gender equality. And, fourth, social services such as health and education need to be expanded and strengthened to maximize benefits of higher investments in human capital per child.

As Robert Solow once pointed out, "a list of ingredients is not a recipe" and for different countries recipes will be different – in a sense that the policy ingredients listed above and standard population policy components will need to be mixed in various proportions, depending on specific circumstances. The good news is that the causality between fertility decline and acceleration of economic growth goes in both directions during the window of the demographic dividend. Once the demographic transition has started, the virtuous circle might well be achieved.

Finally, another important point is that very rapid population growth does involve risks, particularly for the landlocked countries. More on this here: