Wednesday, August 02, 2006

Demographic Dividend

The Economics of Demographics


This one is a real treat for anyone simultaneoulsy interested in demographics and economics and as such also a treat for the DM team and hopefully for our faithful readers as well. What am I talking about then? In short, the IMF has chosen to devote their Septemper issue of Finance and Development to 'The Economics of Demographics' and obviously this cannot go un-noticed here. On that note we should thank fellow blogger Pienso for brining the IMF publication to our attention via E-Mail. So what do we have here?
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Demographics and an Overheated India?

There has certainly been much debate and discussion lately about what has been known as India's sizzling growth rates whether this rampant pace of the Indian economy is sustainable or whether in fact the economy was on its way to overheat and perhaps even collaps. More interestingly, this discussion has pitted our very Edward and his Indian colleagues over at the Indian Economy Blog against no other than the hegemoneous English magazine the Economist. As such, if you have been following the readings in the Economist as of late the journal has on several occasions pointed to the worrying signs of India's economic growth. A week ago the Economics Focus column featured two studies which compared economic growth in India and China; both of them by Barry Bosworth and Susan M. Collins from the Brookings Institution; 1) Accounting for Growth: Comparing India and China and 2) Sources of Growth in the Indian Economy. And the conclusion as quoted from the Economist Economics Focus column.
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Of Population Pyramids and Value Chains

It is by now well known that the main hope for developed societies subject to rapid population ageing who wish to maintain their relative standard of living lies in increasing their collective productivity more rapidly than they increase their dependency ratio via-a-vis the older age groups. Now in the comments thread on the recent ’Reform is a Dirty Word’ post I ventured to say that I found it obvious that at some stage we would reach a point where the rate of population ageing was going to outstrip the rate of productivity increase (in which case relative income per capita would inevitaby start to fall). David, unsurprisingly, asked me why I thought this to be the case. I was not happy with the response I offered (which was essentially some ’rigmarole’ about the biology of ageing which is coming in a separate post), and since that time I have been scratching my head trying to find a simple way to get this point across. Perhaps I now have one.

All you need to get to grips with what follows is a basic understanding of geometry and a vague interest in football.
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Europe's Tiger


Last Friday Eurostat released the 2004 data on comparative per capita PPP’s (purchasing power parities) across the EU. Perhaps the most surprising fact which emerges is that Ireland is now in second place (after Luzembourg) with a PPP 40% above the EU average. For a country that not so long ago was considered one of the ’poorer’ EU members this is truly stunning.

It is generally well known that Ireland had (and continues to have) one of the highest fertility and population growth rates in the EU, but this has not been regarded as especially important since conventional neo-clasical growth theory (and the new ’super-duper’endogenous growth theory for that matter) argue that increased population means a bigger economy, but not necessarily an increase in per capita income. However, as I said yesterday, it’s all about population structure. What we are now understanding is that the right age structure can produce very rapid increases in per capita income, and Ireland is, of course, a good case in point.

In the case of the ’Celtic Tiger’, New Economic Paradigm theorists David Bloom and David Canning, who have made a specific study of the Irish case, reached the following conclusions:

Ireland has been slow to complete the demographic transition. The death rate in Ireland, which drifted down only slightly during the period 1950-2000, has been relatively low by international standards……and comparable to the rest of Europe. By contrast, the birth rate was much higher through the early 1980s (over 20 per thousand). Indeed, Ireland has long been seen as a demographic outlier within Europe, since its fertility rate was still moderately high when those in other European countries had fallen to near, or below, replacement level………….
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The Demographic Dividend

Firstly, a quick hello and thank you to the Indian Economy Blog Team for inviting me to be a guest poster here. In this post I basically want to draw attention to a research article by Deutsch Bank’s Sanjeev Sanyal ( Demographics, Savings and Hyper-Growth). While I was chasing the link however I stumbled across this piece ( India as a global power? published 16 December 2005 ) on the Deutsche Bank site, and I guess it might be of interest to people.
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The relative advantage of a young population?

India's comparative advantage vested in demographics?

'India's increasingly younger demographic profile — with nearly 60 per cent of its population being below 30 years — gives it a distinct advantage in the global outsourcing market as it provides for a large, educated workforce capable of meeting the brainpower demand of the global economy, president and CEO of Cognizant Technology Solutions N. Lakshmi Narayanan, said on Friday.
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India's young population and related issues

Three is such a good number so with this third post I end my rather random but educative (at least for myself:)) "series" of posts about India, and what better place to end than the demographics of this huge country (Wikipedia) ? Recently, we have been indulging ourselves on the demographics of China over at Demography.Matters invoking the well-known question of whether China will grow old before it grows rich? Our conclusion ?
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Migration Ireland

This may not exactly comes as breaking news, but the Irish Central Statistical Office published a report earlier this month giving population and migration estimates for 2006. And of course what we learn from reading that report is that immigration now constitutes some two thirds of the annual Irish population increase (the other component coming naturally from increasing life expectancy, since fertility is now below replacement level).
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Fertility in Morocco

Actually the big demographic news of the moment has to be what is going-off in the stretch of water between Mauritania and the Canary Islands. Since I am posting on this separately at A Fistful of Euros, I thought it might be timely to also take a quick look at why Moroccan immigration into Spain isn't the big issue everyone thought it was going to be. Basically, as we can now see from the rising importance of Sub-Saharan migration to Spain, there are nothing like the number of Moroccans arriving in Spain - at least proportionately - as there were back in the 1990s. Undoubtedly there are many reasons for this change, but one of these without doubt is the impact of the demographic transition on Morocco itself.
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A Demographic Divide?


In the post below Edward discusses the demographics of Nigeria and more specifically how economic growth also is effected by high fertility parallel with the situation of economic growth and low fertility which is perhaps more widely cited here at Demography.Matters. As Edward notes in relation to Nigeria and more generally in the context of many sub-Saharan Africa high fertility is at the heart of the growth issue. The point here is in fact the savings rate and crucially what we could call a Malthusian trap where all the income is used for consumption and thus there is no room savings/investment dynamics (capital accumulation). Robert E. Lucas also explains this process in terms of the growth feedback with Malthusian population dynamics.
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Nigeria Population Census Results


Well I don't have a lot to say about the details of the findings at this point (since among other things Thomas may want to say something), but as he suggested in this post, the Nigerian census results are now complete and published:

Nigeria's population is growing at an annual rate of 3.2 percent and stands at just over 140 million, a 63 percent increase in 15 years, population commission chairman Samu'ila Mukama has said.

"The total number of the Nigerian population is 140,003,542," Mukama announced in presenting the provisional results of the March 2006 census to President Olusegun Obasanjo in the federal capital Abuja on Friday.

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Demographic Dividend in India and the US?

I would just like to draw readers attention to two recent blog posts which tackle very similar demographic ground, but in very different contexts. First off is The Indian Productivity Miracle, a post from Nanubhai on the Indian Economy blog. Then in second place there is Tim Duy's latest FedWatch on Mark Thoma's Economist's View (Claus has already discussed this post here).

Now the theme which holds these two - apparently unrelated - posts together is the fact that they both consider the impact of a changing demographic environment on economic performance. In the US case, it is clear that a period of very favourable demography is now about to come to an end (not exactly a demographic dividend, but damn near one). What follows comes from Tim Duy:

This - his expression of his inflation concerns - is not, however, the most interesting point in Bernanke’s speech. Nor was his view on the housing market. More interesting was his clear words on potential output:

With regard to the labor force, research by the Board's staff highlights the role of demographic factors in determining the number of people available to work in the years just ahead. Most notably, the impending retirement of the baby boomers and the fact that women are no longer increasing their participation in the labor force at the rate they were in the past will tend to restrain the future growth rate of the U.S. labor force….Even if productivity growth is sustained at a reasonably good rate, the slower expansion of the labor force will imply some moderation in the rate of growth of potential output over the next few years. In the very near term, that slower growth in the labor force needs to be taken into consideration when assessing the sustainability of given rates of expansion in economic activity.

I myself am not convinced on the outlook for baby boomers. But that shouldn’t distract from Bernanke’s point that the Fed is looking at a lower level of potential output than market participants – which translates into a lower acceptable rate of growth. Of course, this point has been made before, but I don’t think the Fed believes market participants were listening. Indeed, Fed officials apparently felt a need to reiterate the point further that week.
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Philippines and the Demographic Dividend

The Philippine economy grew at its fastest pace in 17 years in the first quarter of 2007, and this set me thinking:

The Philippine economy grew at its fastest pace in 17 years in the first quarter of this year, on the back of strong electronics exports, modest increases in government expenditure and consumption fuelled by election campaign spending.


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Chile, Argentina and the Demographic Dividend

I have already put up a short post on Chile and the demographic dividend earlier this year. Perhaps now is a good moment to take another look at this argument in the Latin American context. (A reasonable explanation about what the demographic dividend involves can be found here).

Basically from my median ages chart (a short introduction to why median ages are important can be found here) I have identified three countries in Latin America who should experience some kind of DD process in the years ahead: Brazil, Argentina and Chile.
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The Chilean Tiger and the Demographic Dividend


This is fascinating:

"The price of copper, Chile's main source of foreign exchange, has rocketed to $3 to $4 a pound in the past year, from as low as 60 cents in 2001. The high copper price has added billions of dollars of new wealth to a country that is now the richest in Latin America...."

"Yet Chile's population is on edge over the question of how quickly to spend its copper windfall. In demonstrations in May and June, student and teacher groups demanded that President Michelle Bachelet pay out more for education and other social programs. High-school students called a strike, and more than 800,000 people protested at high schools and universities across the country. Police in the capital of Santiago and other locales responded with water cannons and tear gas, arresting more than 1,000."

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