Merry Christmas and a Happy New Year to Demography.Matters' Readers

As we get ready to turn the page on another year I think it is due time to wish the readers and commenters of Demography.Matters a Merry Christmas and a Happy New Year. We realize that the latter part of 2007 has been somewhat meager with respect to normal tradition here at Demography.Matters but we hope that our readers will be able to forgive us. We have of course not been idle and I am certain when I say that the work we have been doing of a more intense data collecting nature will serve us well indeed in our future work here at Demography.Matters. Moreover I am happy to see that our readers, new as well as old, are ready to engage in interesting and intelligent commentary most recently proxied by the enlightening discussion following Edward's post on the demographics of the US. In a year where Al Gore secured himself the nobel prize for putting the climate issue on the agenda you cannot help but feel that some countries would be better off if somebody explained to them a little more emphatically their inconvenient truth with respect to demographics. Here at DM at least we will keep on churning in the new year.

I leave you with some snippets and light reading suggestions for the holidays.

Firstly and really as a reference to the post trailing this one on the demographics of the US (see link above) a recent piece in the Washington Post caught my attention.

For the first time in 35 years, the U.S. fertility rate has climbed high enough to sustain a stable population, solidifying the nation's unique status among industrialized countries. The overall fertility rate increased 2 percent between 2005 and 2006, nudging the average number of babies being born to each woman to 2.1, according to the latest federal statistics. That marks the first time since 1971 that the rate has reached a crucial benchmark of population growth: the ability of each generation to replace itself.

More information can be found in the article which conforms well with the general discussion such as it has been going on here at DM. The second article I want to emphasise comes from the extended Christmas edition of the Economist. It is called 'Census Sensitivity' and talks about the difficult process of counting people by quantitative as well as qualitative measures. Finally, the Economist also has a piece up on the hunter-gatheres which I found very interesting and which I am sure will interest our readers.

Having presented these small snippets I will depart wishing you all a Merry Christmas and a Happy New Year. We will resume posting here at DM again in the new year barring some kind of dramatic unforseen events.

Best Wishes

The DM team.

Some Reflections on US Demographic Data

Well, as promised in the comments to my last post, here is a little bit of US demographic data. This isn't the first time I have taken a brief look at US demography on this blog, and it surely won't be the last one.

This was an early attempt, where I tried to link the rebound in the US TFR that we can see from the mid 1970s to the start of modern-era large-scale immigration and to a slowing down in the birth postponement process in the US 'majority' population. The consequence of this have been a 'recovery' of those previously missing births (this process has also been noted in a number of societies in North Western Europe, for example in the United Kingdom at the present time, following the wave of migration from Eastern Europe). The US rebound can be clearly seen in the following chart:

This "recovery" trend continues, as outlined in the summary which accompanies the US Births Data for 2006 (preliminary) published earlier this month by the National Center for Health Statistics:

As a result of the increases in the birth rates for women aged 15-44, the total fertility rate –- an estimate of the average number of births that a group of women would have over their lifetimes –- increased 2 percent in 2006 to 2,101 births per 1,000 women. This is the highest rate since 1971 and the first time since then that the rate was above replacement -– the level at which a given generation can replace itself.

Now in general terms US demography can, I think, be given a pretty clean bill of health, as can be seen from the very solid looking population pyramids the US generates, and especially moving forward (see examples at the end of this post). The underlying situation is pretty stable and pretty sustainable, or so at least it seems. In part the US position is a result of the pretty unique movements in median age which occured in the 20th century (by developed country standards). The US seems to have found the "elixir of youth", and for this reason enters the next "ageing" stage from a comparatively priviledged position. This can be seen from the following median age chart.

What is most striking about the above chart is the way in which the US median age actually drops after the mid 1950s until the mid 1970s. This is a very surprising phenomenon, and I doubt anyone has really studied this in depth, especially since up to the present time noone really imagined that such shifts in median age were very important. Recent economic phenomena have of course started to put all of this back on the agenda, and I imagine someone, somewhere will get into this at some point.

It would be very interesting to understand this whole process a lot better, to see what can be learned from it, especially in the contaxt of trying to arrest rapid ageing in the not-yet-rich, newly developing countries. Basically the US in 1970 seems to have had the sort of median age which an Argentina or a Brazil have today, and yet it was the most developed economy of that time. What does this mean? What can we calibrate here?

Life Expectancy

Moving on slightly, while as I say in an ageing context US demography is very solid, there are negative elements. The first among these is evidently life expectancy, and in particular male life expectancy? This is significantly below that which is to be found in many other developed economies. What does this mean, and what economic conclusions can we draw from this? We know Americans work a lot, is this a case of burning the candle at both ends. (See this fascinating article from Colin Speakman et al: Living Fast, Dying When? The Link between Aging and Energetics, for an extensive review of the issues involved here).

Are life style and diet important? Certainly the recent rise in obesity and diabetes is setting alarm bells ringing everywhere. Researcher Jay Olshansky, in a controversial article in the New England Journal of Medicine in 2005, even went so far as to suggest that if the increase in obesity was left unchecked it could arrest or even reverse the whole trend for life expectancy to increase. Evidently in the context of the growing discussion of the rise of the so-called metabolic syndrome (diabetes and obesity, basically) these life expectancy problems may become aggravated, and this may sour the inter-generational debate somewhat.



At the end of the day what we have in the life expectancy department are a large number of unanswered questions. We have little real idea at this point, for example, of whether - once life expectancy reaches a certain point - we are really increasing our economically productive life to any significant extent, or whether we are increasing the number of years of (more or less pleasant, according to individual circumstances) dependent life. A useful summary of the whole state of the art in the great life expectancy debate can be found in this piece from the population reference bureau.

Immigration

Immigration obviously forms a significant part of the US population growth story, and indeed immigration has had a major effect on the size, distribution, and composition of the U.S. population. According to data from the Population Reference Bureau, immigration contributed at least one third to the total population increase which took place between 1990 and 2000, during which time the number of foreign-born U.S. residents rose from almost 20 million to over 31 million.

Using rough and ready calculations based on the recent flows, the PRB estimate that the number of foreign-born persons (first generation migrants) may well to rise from 31 million in 2000 to 48 million in 2025, and if this is the case the foreign-born share of the U.S. population will rise from around 11 percent to about 14 percent. Accordingly, the number of second-generation Americans—the children of immigrants—will continue to increase.

In 2000, first- and second-generation Americans constituted about 21 percent of the U.S. population. If net legal and illegal immigration were to average around 820,000 per year, first- and second-generation migrant Americans will constitute about one-third of the U.S. population by 2025. Of course immigrants have played an important part in the recent increases in the US labor force simply because they tend to be of working age. Immigrants accounteded for nearly 50 percent of the total labor force increase between 1996 and 2000, and as much as 60 percent of the increase between 2000 and 2004. If net immigration were to run at the rate of 1 million per year, new immigrants and their children would effectively account for all of the growth in the U.S. labor force between 2010 and 2030 (PRB estimates). Of course all this begs some very important questions about the kind of economic growth we have been living on. For all the talk about productivity surges and total factor productivity it is important to take note of the fact that a good deal of economic growth is very factor intensive (ie it requires increases in the inputs of labour and capital). This point is important since while the availability of capital over the period from now to 2025 may well be pretty much guaranteed (all those ageing populations busy saving) labour force increases may be much more difficult to generate, as the traditional sources of migrant flows (and especially for the less skilled types of work) begin to dry up due to a combination of declining fertility and economic development in the countries concerned.

Before leaving this topic it is interesting to note that even while the total number of foreign born in the US continues to rise, the share of foreign born in the total population still is not as high as it was in 1910, although it is of course still climbing.

It is also interesting to note how the turn-around in the decline of the foreign born share (in the mid 1970s) more or less coincides with the fertility rebound.




The rebound is the product of a combination of two components (birth recovery among the US population of European origin who had been "postponing" and the arrival of a higher fertility migrant population, largely from Latin America, but it is hard to attribute weightings to each of these. What is clear is that the US aggregate population dynamic is a product of the overlaying (one on another) of two seperate dynamics, as I attempt to explain in this post (a tale of two pyramids). Just to remind us here are the local pyramids for each population. First the white non-hispanic one.



As can be seen, this pyramid is very similar to the ones we can find for some European countries (the UK, Sweden etc). And here is the hispanic pyramid.



Teenage Births

Another factor which has been something of an ongoing cause for concern among those who have been thinking about the US demographic situation is the relatively high level of teenage pregnancy which has been a factor over the years in the comparatively high achieved fertility rate. Now this problem, as can be seen in the chart below had been reducing, but out of the blue in 2006 we seem to have an uptick.



Of course as the CDC say it is far to early to attribute any significance at all to this, be the development is, in itself, interesting.

The report shows that between 2005 and 2006, the birth rate for teenagers 15-19 years rose 3 percent, from 40.5 live births per 1,000 females aged 15-19 years in 2005 to 41.9 births per 1,000 in 2006. This follows a 14-year downward trend in which the teen birth rate fell by 34 percent from its all-time peak of 61.8 births per 1,000 in 1991.

"It’s way too early to know if this is the start of a new trend," said Stephanie Ventura, head of the Reproductive Statistics Branch at CDC. "But given the long-term progress we’ve witnessed, this change is notable."

The largest increases were reported for non-Hispanic black teens, whose overall rate rose 5 percent in 2006. The rate rose 2 percent for Hispanic teens, 3 percent for non-Hispanic white teens, and 4 percent for American Indian or Alaska Native teens.

The birth rate for the youngest teens aged 10-14 declined from 0.7 to 0.6 per 1,000, and the number of births to this age group fell 5 percent to 6,405. The birth rate for older teens aged 18-19 is 73 births per 1,000 population –- more than three times higher than the rate for teens aged 15-17 (22 per 1,000). Between 2005 and 2006, the birth rate rose 3 percent for teens aged 15-17 and 4 percent for teens aged 18-19.

Global Rebalancing

Another issue which the US of course faces is the externally-related one of the changing global demographic enivironment. Whilst demographically speaking the US may well be reasoanbly stable, many parts of the world are evidently not, and some of these parts - Russia or China, for example - are evidently not. One of the strong arguments I have been advancing on this blog over the years boils down to saying (the obvious) that no man is an island, and even less so a country which is effectively wired-up to a globalised world economy. Changes elsewhere, it is clear, will be noticed inside the US.

One of the most obvious areas where this is currently the cases is associated with the role which the US dollar has been playing as a unit of measure for the global accounting system in recent decades. And this factor certainly does have a demographic component, since it is in large part the relative size of the US economy which lead to the transition from reliance on the UK pound sterling to use of the US dollar in the first place. Now demographics are once more at work, in the shape of the rapid arrival of a new set of potentially extraordinarily large economies on the global scene.

So it would seem that the US economy does now have something of a demographically driven adjustment problem (not in terms of the small adjustment which will be necessary as a result of the sub prime issue, which I think, incidentally, US demographics will make a lot less enduring than some imagine) but rather insofar as that the burden of carrying what is known among economists as Bretton Woods II had fallen squarely on the shoulders of the US dollar, and this reliance had the effect of encouraging people to accumulate rather more dollars than they actually needed. With the rise of the new global giants (also known as the BRICs) this system now seems to be in the process of unwinding with an ongoing recoupling of the global economy a recoupling which will in and of itself imply a reduced role and lower profile for the US economy (hene the interminable "decoupling" debates), associated with an ongoing diversification of currency reserves out of the dollar. As Claus Vistesen ably puts it in this post here:

You see, it appears that the old maid is a fitting metaphor for what at the moment seems to be a global game being played about not ending up being stuck with the Dollar.....the game is played and apart from the USD starring it could also seem as if a derivative of the old maid would be who in fact must step up to take the role for the USD as the structure of Bretton Woods II is ground down. Here of course, it will soon (i.e. after my exams) be time to re-visit old arguments but for now I will merely note that I always saw the current structure as very strong and fragile at the same time. It was/is very strong quite simply because de-coupling/re-balancing in the traditional sense where Europe and Japan ascends to take over the throne of the US would be virtually impossible. The fragile nature then comes in as an immediate consequence of this since if Europe and Japan cannot step up to the task who can and indeed will? As I say, fundamentals will tend to drive this and no-doubt the process of global re-coupling whereby the likes of India, Brazil, and Turkey takes over the clout of the US will materialize itself but a lot of glasses might end being shattered in the process.

So we are passing through a delicate moment, that part is clear. The world economy is changing fast, as revealed by the following chart which shows the shifting relative dollar values of the Japanese, the US and BRIC economies as % shares of global GDP. As can be seen the relative decline in the value of US GDP is virtually mirrored by the rising share of the BRICs.

Basically, if we can call the second half of the 20th century the "modern growth period", there were in fact two separate growth processes at work, a growth in wealth and income in the developed world, and an accumulation of population elsewhere. Indeed arguably it was the very rapid rise in population numbers (a by-product of the very high fertility levels) which was responsible for the stagnation in income and wealth which took place in these countries. Now, with fertility rates falling rapidly more or less everywhere , this balance is changing, and the former "underdeveloped" countries are started to accumulate not population but wealth, with the significant detail that they are doing this from very large population bases, with all the impact that this has in terms of global GDP shares and resource (climatic) pressure. Rather than calling ours a post-modern growth era, perhaps we would be better with "the epoc of the great unwind".

So, and briefly summing up, anyone in their right minds would be more than happy to trade population pyramids with the US of A, but this does NOT mean that the whole US situation is without its own very specific problems, different as they may be.

Appendix: US Population Pyramids

A note on one Canadian periphery

My birthplace, the Canadian province of Rrince Edward Island, population 140 thousand, isn't often considered in relation to wider demographic trends. While it's true that the Island is peripheral even in the Canadian context, with its population of 140 thousand being smaller than those of a dozen Canadian cities and an economy based primarily on the service sector (including tourism) and slowly declining primary industries like agriculture and fishing, it's also true that Prince Edward Island's demographic prospects and futures prefigure the demographic issues facing peripheral areas throughout the First World. Scott Peterson wrote last week about how falling populations is reshaping the landscape of many depopulating parts of Europe; Prince Edward Island has faced this trend for more than a century. Although there is now intense human presence on the landscape of Prince Edward Island, with more than half of the Island's land being used for agricultural or other purposes, in the late 19th century an evenly distributed population of farmers occupied the near-totality of the Island's territory. This geographic distribution of population changed when, soon after Canadian confederation, Islanders began to participate in the ongoing mass emigration from Atlantic Canada.

In the nineteenth and early twentieth centuries the exodus was primarily to the ‘Boston states.’ It reached crisis proportions in the 1880s when our industrial boom began to go bust. Despite efforts to staunch the outward flow, it continued unabated until the United States closed the border during the 1930s Depression. Scholars estimate that between 1851 and 1931 some 600,000 people left the Maritimes, nearly 50 percent of the population still present in 1931. Following the Second World War, out-migration again became acute as villages dependent on farming, fishing, forestry, and mining expelled their people to the booming Ontario economy. The oil crisis of the 1970s shifted the emphasis to jobs in Alberta.

[. . .]

Scholars debate the impact of out-migration asking whether it was a cause or a result of the region’s poor economic showing. It was undoubtedly both. Living on the edge of two cradles of industrialization in the nineteenth century – New England and the St Lawrence-Great Lakes heartland – it was difficult to establish a third node of development on the Atlantic coast. People were inevitably attracted to the new growth centres. With dwindling numbers, provincial grants declined as did political clout in Ottawa. Economic growth thus became even more difficult to sustain against the centralizing tendencies of Canada’s National Policy. Head offices of banks and businesses followed the money and people were obliged to do likewise. It is unclear whether these trends can ever be reversed.

As a province with a relatively more agricultural economy than its neighbours, Prince Edward Island experienced relatively higher out-migration, with outright population decline being the main trend for most of the first half of the 20th century and many territories which once were farmed being allowed to return to nature. Out-migration slowed down over the second half of the 20th century, as federal transfer payments began to subsidize seasonal economies, the standard of public services improved sharply, and the tourism sector began to take off. The net resutl of all this is that Prince Edward Island faces less potentially damaging demographic challenges than any of the other three Atlantic Canadian provinces. For instance, the Island's fertility and birth rates are higher than in most other Canadian provinces, while the province actually benefits from interprovincial migration: more Canadians move to Prince Edward Island than leave. The tourism sector plays a major role in this second trend; tourism campaigns have successfully promoted an image of Prince Edward Island as a pleasant territory with beautiful natural scenery and an engaging, friendly population, this industry attracting migrants and helping to boost levels of employment. If Prince Edward Island's economy didn't make spectacular leaps forward, this economic strategy may well have helped the province avoid the massive out-migration that has dominated Newfoundland and Labrador's demographic trends for decades. It's worth noting that this strategy isn't dissimilar from Spain's recent economic and population growth, driven so heavily by (among other migratory trends) the movement of northern Europeans to the Costa del Sol and other tourist destinations.

All of this isn't to say that Prince Edward Island doesn't face serious demographic issues. The definitely sub-replacement fertility rate, among other factors, ensures that the number of students (and future workers) in Prince Edward Island may fall by one-fifth by 2020, and Prince Edward Island's development minister has warned that the aging of Island's population and the province's development into a "retirement province" risks creating serious labour shortages, especially if immigrant retention rates don't rise. Even now, as Zena Olijnik ("Immigration: Give us your skilled") wrote recently in Canadian Business, flawed guest worker programs and local populations unwilling to undertake dirty and dangerous jobs are threatening the viability of some industries, leaving some people in these same outlying areas to propose economic revitalization strategies like wildly uneconomic ferry routes. The only thing that can be said about these issues is that the Island has managed to buy itself some time in which to adapt to its new demographic environment. Here's to hoping that this time will be well-spent.

Romania's Demography At A Glance

"...the fetus is the socialist property of the whole society. Giving birth is a patriotic duty, determining the fate of our whole country. Those who refuse to give birth are deserters."

Nicolae Ceausescu addressing a Communist Party congress in 1986




Well for those of our readers who thought I had said all that could be said about Romanian demography in this monster post here, I have a rather nasty surprise: there is more. Scratching my head about the spike I found in the Romanian natality and mortality data I started scratching around a little more, and what follows is what I came up with.

And before I go any further, here's one for your bookmarks, since browsing around for information on Romananian remittances I came across the very intersting "Romanian Migration to Spain - Motivation, Networks and Strategies" by Ana Bleahu, from which I have drawn the above reasonably graphic chart. Bleahu's article is a working paper (careful PDF) from the Institute for Quality of Life at the Romanian Academy, Bucharest. Despite some evident shortcomings, the document is a mine of information, and very readable for the insight the interviews it is based on offer as to the actual motivations of the out-migrants.

As the above diagram makes clear, Romanians are leaving, and in large numbers. The charts I present in this post here - based on data from Italy's ISTAT and Spain's INE - indicated that at this point there are at least a million Romanians (out of a total population of around 20 million) living and working in Spain and Italy alone. Whether this migration is temporary or permanent remains to be seen, and the answer depends in large part, I would suggest, on what happens next in Romania.


Too Much Money Chasing Too Few People?

Now one of the big arguments Claus and I are pushing at the moment - on this blog and elsewhere - is that the sudden acceleration in inflation which we are now witnessing across a whole swathe of emerging economies in Eastern and Central Europe is not simply accidental, or coincidental. Nor is it a simple by-product of collective poor institutional quality, bad government and/or endemic corruption. There are larger, and in historical terms grander, "big picture" processes at work here.

One of these processes is intimately related to the very specific and unusual demographic profile which most of Eastern Europe has inherited from its recent past. So one of my central arguments is that what we have here is a kind of mis-match. A mis-match between a basically third world. "developing-country" type, income level (for this reason they tend to be called "emerging economies") and a very-first-world-type age structure - in the sense that many of these societies have had below replacement fertility for several decades now, and that the key 25 to 49 age group is now peaking nearly everywhere as a proportion of the total population.

But even their demography is pretty unique, since you could say that many Eastern European societies have a mature society population age structure, but with the top of the pyramid effectively lopped off. Lopped-off in the sense that life expectancy - and especially male life expectancy - is normally considerably lower than it is in Western Europe, or other developed economies like Japan. The implications of this are - at this point in time - far from clear, what we have effectively is a research "work in process" in hand here, since we will only know what the implications are as and when we get to see them. In this sense Eastern Europe has become a living laboratory.

But one thing is becoming increasingly clear, and that is that this underlying life expectancy reality is making the raising of participation rates among the over 60 population - which is basically the Lisbon Process "remedy" for addressing the problem of declining working age populations and rising elderly dependency ratios - a far more difficult result to envisage. Rather than increased participation rates, what we are getting as the labour market tightens is accelerating inflation, and this would now seem to constitute some sort of empirical fact.

My argument then (roughly summarised) is that the current epidemic of dramatic "overheating" which is extending itself across the map (and to non-EU destinations like Russia or Ukraine as well) is a by-product of this very special and almost unique combination of demography and poverty (I say almost since you can find this sort of mix elsewhere, for example in the Southern Indian state of Kerala).

Combined and carefully shaken these two ingredients have produced the rather unstable cocktail mixture of a substantial out migration of workers in search of a better standard of life (the poverty effect) together with a shortage of young new labour market entrants (the demographic/low fertility) effect. The twin pincer consequence we have here seems to be a very combustible mixture as we are seeing.

As I say, part of all this is driven by a very structurally distorted underlying demography. As they say demography casts a long shadow, and just how long is very well illustrated by the long run impact of Ceausescu's crazed version of pro-natalism introduced in the late 1960s. The consequences of this policy are very much with us today in the form of Romania's very unusual age structure pyramid (see below). In the pretty unique world of Eastern European demography, Romania stands out as being even more unique.


Demography at a Glance

So, and without more ado, let's now take a rather closer look at this Romanian demography, and to get the ball nicely rolling why don't we start by taking a quick glance at Romanian fertility.





Despite the fact that we have a gap in the data during the late 1980s a number of things stand out clearly enough in the above chart. The first of these is that fertility in Romania was already making the transition to below replacement level by the early 1960s, and in fact dropped below replacement level in 1962. The second is that fertility suddenly shot up in 1967. This was the year the infamous Ceausescu pro-natality campaign was introduced (and you can read more about all this in this post here, but since all of this is such an important aspect of Romanian history, and since the historical memory of Romanian society seems to have a major lacuna here, I am taking the liberty of reproducing a short extract from this book (Ronald D. Bachman, ed. Romania: A Country Study. Washington: GPO for the Library of Congress, 1989. More References at the foot of the article) which gives some essential background.

With a political system in place that made long-range planning the cornerstone of economic growth, demographic trends took on particular significance. As development proceeded, so did disturbing demographic consequences. It soon became apparent that the country was approaching zero population growth, which carried alarming implications for future labor supplies for further industrialization. The government responded in 1966 with a decree that prohibited abortion on demand and introduced other pronatalist policies to increase birthrates. The decree stipulated that abortion would be allowed only when pregnancy endangered the life of a woman or was the result of rape or incest, or if the child was likely to have a congenital disease or deformity. Also an abortion could be performed if the woman was over forty-five years of age or had given birth to at least four children who remained under her care. Any abortion performed for any other reason became a criminal offense, and the penal code was revised to provide penalties for those who sought or performed illegal abortions.

Because contraceptives were not manufactured in Romania, and all legal importation of them had stopped, the sudden unavailability of abortion made birth control extremely difficult. Sex had traditionally been a taboo subject, and sex education, even in the 1980s, was practically nonexistent. Consequently the pronatalist policies had an immediate impact, with the number of live births rising from 273,687 in 1966 to 527,764 in 1967--an increase of 92.8 percent. Legal abortions fell just as dramatically with only 52,000 performed in 1967 as compared to more than 1 million in 1965. This success was due in part to the presence of police in hospitals to ensure that no illegal abortions would be performed. But the policy's initial success was marred by rising maternal and infant mortality rates closely associated with the restrictions on abortion.

The above described episode has had a clear, evident and lasting impact on the age structure of the Romanian population, and we can readily see this if we take a look at a breakdown of the 2006 population by age, since we can see an evident spike in the 37-39 age range.



Now if we come to think about the actual drivers of fertility, it would be really interesting to know why Romanian fertility was hitting such low levels during the early 1960s. As far as the drivers of low fertility go in the short term, the key indicator is normally the rate of birth postponement. Birth postponement is a process which normally revolves around the rising age at giving first birth of those women who decide to have children. It is thus a timing decision, and normally reflects growing investment of young women in their own education or career oportunities. In the Romanian case we do not have specific data for this age, but (again thanks to Eurostat) we do have data for mean age on childbirth, and since most Romanian mothers now have only one child this is not a bad indicator, since the number will be lower, but not that much lower (possibly between 1 and 2 years).



As we can see, the median age at childbirth has been rising slowly but steadily from the mid 1990s, and this process is, in part, behind the very low fertility readings which have been registered in Romania in recent years. But if we think about the current level which is still under 27 (and this is an average for ALL births and not just first births, so the first birth median age might be what, 25.5?) then this still significantly below the Western European norm, which is around the 30 mark. So more years of very low fertility are to be anticipated as postponement continues, and if Romania hits a major economic crisis in the meantime (which is, I am afraid, a very distinct possibility) then we may get stuck in exactly the kind of low fertility trap which the Austrian demographer Wolfgang Lutz has so ably identified.

What we don't know at this point though (since I have been unable to find any data on this interesting topic) is what the first birth age of women was in Romania in the late 1950s/early 1960s. Given the relative poverty and economic backwardness of the country at the time a modern postponement process would seem to be an unlikely candidate for the very low fertility which was being registered, and pressure to work combined with a very "free and easy" abortion system would seem to be a more promising candidate explanation.

However moving on now to the natural evolution of the Romanian population, I think it is worth taking a look at the live births' chart:




Apart from the obvious spike in births in the late 60s which we have already spoken about, it is also worth thinking about the sharp drop in the number of births which took place around the end of the 1980s. To put this in some perspective we might point out that in 1988 some 380,000 children were born, while in 1991 this number was down to 275,000. This is a drop of over 100,000 children a year in just 3 years (and of course the annual rate has subsequently only dropped further). So in 2009 there will be 100,000 young people of 18 years of age LESS than might otherwise have been the case, and the Romanian labour market is BOUND to notice this sharp adjustment, out-migration or no out-migration.

Also, if we come to look at the balance of births and deaths, we will again observe some strange details in the data, including the abrupt rise in the number of registered deaths after 1967, but also the fact that the natural rate of population increase, that is births minus deaths (ignoring migration effects) turned negative in 1991.




So if we look at the theoretical population position we will see this negative growth confirmed:





Turning to life expectancy at birth, we will see, despite a decline in the early 1990s (which may have been associated with high infant mortality) the headline number is now rising, but it is still low in comparison with Western Europe, and this is going to have important economic implications, not least because it places severe limitations on one of the favourite economic recipes for getting out of the kind of problems Romania is getting into, namely raising participation rates in the over 55 age group. Looking at all this data it may well be that the health of the older Romanian population is just not up to taking this kind of strain. I suspect we are going to hear a lot more of this kind of issue in the East European context in the months and years to come.



Finally, to complete our demographic round up, we could look at the median age of the Romanian population. This age is - at a current level of 36.9 - very young by modern standards, but it is hard to know what interpretation to put on this, since Romania is hardly a "young" population in the sense that Iceland or Ireland are, since the whole structural configuration of the demographic panorama is so uniquely skewed and distorted, and in part the comparatively young median age is a reflection of the comparatively low level of life expectancy.



Now what stands out here is just how comparatively young Romanian society is at this point. This could become clearer if we put Romanian median age up against Slovenian median age, since Slovenia is effectively the youngest member of the EU10 (although still significantly younger than the older West European societies like Germany or Italy).



Really at this point I am neither sure how to interpret this, nor of the significance of this difference in ages between these two societies. Normally this more youthful effect would be associated with a much later decline in fertility to below replacement (say Ireland or Iceland), but this is not the Romanian case and it undoubtedly has something to do with the specific weight of the ceaucescu cohorts within the population, but quite what this will mean I am not really sure at this point. I don't imagine anyone is, since we have never really been here before.



Again, this key age group exhibits strange behaviour in the Romanian case, since (despite the inevitable gaps in the data) we can see that this group is already dropping as a share of the population in the 1970s (which is most unusual) and then of course (after the "birth spurt") it starts to climb again, and now it seems to have peaked again. But it seems to have peaked at a very low share - 37 (while 38/39 would be more normal) and at a very low median age (36, while 40 would be much more usual, again, if only we knew how to interpret all this). And then you have the million or so people who are there (in the official numbers), but aren't (insofar as they are out of the country). How will they affect things? I wish I knew the answer to all of this, but one thing is sure, we will find out soon enough, although unfortunately by that time it may well be too late to do anything constructive.


Population Pyramids

Finally lets have a look at some population pyramids, which, in the Romanian case aren't any more re-assuring. I have chosen here to make a comparison with Ireland, since Ireland has had a more or less normal (if somewhat delayed) demographic transition, and has been fully able to leverage this to get the full blast of her "demographic dividend". If we look at the pyramids for the early 1990s we can see that this is when Romania in principle was best positioned to get the rapid catch up growth, and this is, of course, when Ireland was doing exactly that.





If we look at the transitions through the pyramids, we can see that Ireland's path is a lot more stable than Romania's, and especially when we bear in mind that Ireland has, since the end of the 1990s been a strong net receiver of inward migration, while Romania's has been exactly the opposite case.







But really the most striking contrast is in the 2020 pyramids, since we can see that while Ireland's population is ageing, and the elderly dependency rate is rising, this is happening much more slowly than it is in Romania, and the whole pyramid is a lot more stable and sustainable, the bottom section is a lot thinker if you will. As I say, I wish I new exactly how to interpret all this, but one thing is for sure, the difference between Ireland and Romania's demographic evolution is not in Romania's favour.


By Way of Conclusion


Well returning to our point of departure and the crazed policies of Nicolae Ceausescu, perhaps it isn't necessary to say this at this point (after all the posting it shouldn't be!), but those of us on this blog who are advocating pro-natalist policies to help offset the more dramatic effects of population ageing, normally think in terms of an approach which is more along the lines of the Swedish or French ones, and we would obviously wish to completely dissociate ourselves from the type of coercive pro-natalism which was advocated and implemented by the likes of Ceausescu and his ilk. What we are arguing for is a collective effort on the part of the whole of society (organized inevitably via the state) to transfer resources to those women who would like to have children (Adam Smiths "hidden hand" seems to have gone "missing" at just this point, in the sense that societies and economies do not seem able to guarantee their own reproduction, which is at the end of the day a necessary prerequisite for economic growth as we now know it, so this is precisely the kind of case the old founder of libertarian economics would have had in mind as a justification for state intervention). What is being advocated by modern pro natalists then is a policy to support choice, one based on the secure knowledge that our collective interest as societies lies in the direction of doing this, and of reproducing our populations (even if in decline) across a stable trajectory. Our future lies in this direction since otherwise.... well, unfortunately we are more than likely just about to find out what the otherwise alternative is in the present Romanian case.


Unfortunately, however, maybe at the end of the day Ceausescu was right about one thing, maybe the rate of childbirth does determine the whole future of a society, and for many decades to come. His authoritarian attempt at social engineering however has very definitely become part of the problem legacy, and not part of the solution.



Bibliography and Appendix

Extract from Estimating the Consequences of Unintended Fertility for Child Health and Education in Romania: An Analysis Using Twins Data, by Peter J Glick, Alessandra Marini and David E Sahn.



Among the hardships faced by Romania’s population under Ceausescu was an almost uniquely harsh population policy. When Ceausescu came to power in 1965, Romania’s birth rate (15.6 per 1,000 population) was 44% lower than in 1950, in large part due to an exceptionally liberal abortion policy (Baban and David, 1996). With the aim of reversing this downward trend in fertility, the government in October 1966 made family planning and abortion illegal with only rare exceptions.

As a consequence of this law as well as restrictions on access to modern contraception and a range of other pronatalist policies (including divorce restrictions as well as financial incentives to bear children), the birth rate tripled from 13 to 40 per 1,000 in less than one year (Streatfield, 2001). Additional and even harsher measures were enacted in 1985, including among other practices compulsory regular pregnancy tests of women in their twenties (David, 1990). Public health consequences of these policies were severe, including extremely high rates of maternal mortality as women resorted to unsafe illegal abortions (Baban and David, 1996) and the placement of large numbers of unwanted children in overcrowded orphanages.

With the 1989 revolution, policy reversed again: the pronatalist policies were revoked and abortion and contraception were legalized. The rate of legal abortion quickly reached the highest level in the world, with about 200 abortions per 100,000 women aged 15-44 in 1990 (Serbanescu et al, 1995). Access to modern contraceptives improved but they remained generally unavailable (RAPHHM 1999; Baban 1999) and contraceptives knowledge was poor, in large part due to misinformation spread by the Ceausescu regime. There were modest declines in infant mortality and larger reductions in maternal mortality (Serbanescu et al., 1995; Mureşan and Rotariu, 2000) but these ratios were still the highest in Europe a half decade after the revolution.


Baban, A. (1999). ‘Romania’, Chapter 10, in David, H.P. (ed), From Abortion to Contraception, Greenwood Press, Westport, Connecticut.

Baban, A. and David, H. (1996). ‘The Impact of Body Politics on Women’s Body, Women and Men in East-European Transition Project’, Lectures held at the summer University in Cluj, Romania, July, 1996.

Mureşan, C. and Rotariu, T. (2000). ‘Recent Demographic Development in Romania’, in Kucera T., Kucerová O. V., Opara, O.B. and Schaich, E. (eds), New Demographic Faces of Europe, Springer-Verlag, Heidelberg, , pp.267-285.



Serbanescu, F., Morris, L., Stupp, P., and Stanescu, A. (1995). ‘The Impact of Recent Policy Changes on Fertility, Abortion, and Contraceptive Use in Romania’, Studies in Family Planning, Vol. 26, pp.76-87

Romanian Association of Public Health and Health Management (RAPHHM) (1999). Reproductive Health Survey, Romania, 1999: Final Report, Romanian Association of Public Health and Health Management, Bucharest

Trebici Vladimir (1991) – Genocid si demografie (Genocide and Demography) – Editura Humanitas, Bucuresti



According to Manuela Lataianu in "The 1966 Law Concerning Prohibition of Abortion in Romania and its Consequences. The Fate of One Generation":

All women were forced to go for a gynaecological control every month, this monthly health control representing the requirement for receiving medical care8. The pregnancies detected were monitored until term. In this way, the possibilities to provoke an empirical abortion were almost totally annihilated. The law was extremely severe, numerous gynaecologists as well as women who resorted to this method paying with years of prison their trial to avoid it. At the same time the law punished the sale of modern contraceptive means which, as a result, disappeared from the specialised shops. All persons over 25 years old who did not have children (excepting those who had valid medical infertility problems) were punished for celibate, paying 30 per cent tax on income.

The generations 1967 and 1968 are the largest in Romanian history, the children born during this period being informally called “ceausei” (Ceausescu’s babies).

Consequences of the Decree no. 770/1966 concerning prohibition of abortion


However, on long run the consequences of applying this law were not at all favourable to Romania. Firstly, the rate of maternal mortality – and especially that of maternal mortality caused by abortion – reached in Romania the highest position in Europe. As it could be noticed into the table 2, in 1980 in Czechoslovakia this index was 9.2. This value is the lowest in comparison with Romania, were this index reached the level of 132.1. After almost 10 years, in 1989 it can be noticed that generally, the woman’s situation – at least from this point of view – knew a substantial improvement in this part of Europe, excepting Romania, which registered a substantial increasing of it (169.4), maintaining the top position.

Another consequence of this law was a high increasing of the infant mortality rate. Between 1967–1989 there were born almost 10 millions children. 340,000 of them died before reaching the age of 1 year. Demographers estimate that 20 per cent of children born in this period were under-weight or with congenital malformations, this fact affecting negatively the biological quality of population.

Trends in Land Use and Attitudes Regarding the Same in Europe

Guest Post by Scott Peterson

Newsweek International posted a story this summer to its website from its July 4, 2007 issue with a summary line as follows: “Economics and declining birthrates are pushing large swaths of Europe back to their primeval state, with wolves taking the place of people.” The article describes a trend in Europe’s rural areas of “ultralow birthrate(s) and continued rural flight”…to the extent that “rural flight continues to suck people into Europe's suburbs and cities.” The UN and EU are quoted to the effect that by 2030 the rural areas of the EU 25 “will lose close to a third of its population.”

The article describes some examples of changes in wildlife populations:

“In 1998, a pack of wolves crossed the shallow Neisse River on the Polish-German border. In the empty landscape of Eastern Saxony, speckled with abandoned strip mines and declining villages, the wolves found plenty of deer and rarely encountered humans. They multiplied so quickly that a second pack has since split off, colonizing a second-growth pine forest 30 kilometers further west.”

“In Swiss alpine valleys, farms have been receding and forests are growing back in. In parts of France and Germany, wildcats and ospreys have re-established their range.”

Bizarrely, some environmental groups in Europe don’t want farmland to revert to a wild state. The article claims that “The scrub brush and forest that grows on abandoned land might be good for deer and wolves, but is vastly less species-rich than traditional farming, with its pastures, ponds and hedges”, and quotes Jan-Erik Petersen, a landscape biologist at the European Environmental Agency in Copenhagen as saying that "Once shrubs cover everything, you lose the meadow habitat. All the flowers, herbs, birds and butterflies disappear…a new forest doesn't get diverse until it's a couple of hundred years old." Such ideas seem to contradict the goals of environmental groups in the US which as far as I can tell seek to allow farmland to revert to a natural state. I doubt that there is meaningful research that supports Petersen’s assertion.

The article states that ‘Keeping biodiversity up by preventing the land from going wild is one of the reasons the EU pays farmers to mow fallow land once a year. France and Germany subsidize sheep herds whose grazing keeps scenic heaths from growing in.” That seems absurd to me. The article goes on to say that “Outside the range of these subsidies—in Bulgaria, Romania or Ukraine—big tracts of land are returning to the wild.” I seriously doubt that biodiversity will be a problem in these areas.

The article describes an attitude toward the landscape such that it “is glued to the European identity, reflecting what the Germans call "Kulturlandschaft"—a landscape shaped by centuries of human care”, and says that “Many Europeans are reluctant to just let nature do its thing.” This attitude doesn’t seem to square with the seeming momentum of Europe’s Green movement, and certainly has received very little attention in the US.

Argentina Fertility, Demography and Economic Growth

First off, a quick apology to regular readers for my rather protracted absence. This has been due to lack of time rather than lack of interest, but then I guess you all know what that feels like.

The topic of this post is Argentina, and it is a timely one, since Argentina just had some reasonably well publicized elections. Argentina has also been in the news to some extent for the rather shabby way in which it has been managing its inflation statistics, and for the fact that its energy infrastructure is little better than a walking - or crawling - disaster. On top of this we have the fact that Argentina does not exactly have the most business friendly or competitive institutional environment, indeed Argentina just clocked in at 85th place in the World Economic Forum's Global Competitiveness Index

All of this then makes it rather surprising to discover that Argentina has in fact enjoying rather stellar economic growth over the last few years, since coming out of the major crisis which took place there around the turn of the century.



In fact the really big, big news which lies behind the recent electoral triumph of Cristina Fernandez isn't to be found the technique which has been so delicately refined in order to prune Argentinian inflation data, nor is it even to be found in the fact that earlier in the year many of the country's factories were brought to a virtual standstill by the need to maintain supplies to Argentina's domestic consumers (and of course voters) in the face of growing shortages. No, the principal "big picture event" which has marked this years electoral process is the fact that Argentina's economy has been expanding at a sustained annual pace of around 8% per annum over the last four years, and is, if anything, accelerating at the present time, since the Argentine economy reportedly expanded at the fastest pace in three months in August and was growing at an annual rate of 9.2%. Obviously the "China phenomenon" - if we can use the expression to characterise those emerging economies which now seem able to sustain very high levels of annual GDP growth (Turkey, India etc) - is something which now extends way beyond China. And the mention of China is not altogether incidental here, since it was by linking-in to China's growing need for agricultural products (and in particular for Soya) that Argentina first began to put the turn of the century crisis behind it.

So, the interesting question is, if we can't put this sudden change of fortune down to good economic management, or if we can't attribute it to sound institutions, then just what can we attribute it to?

Its the Demography, Silly!

Well for anyone taking a long hard look at Argentina's recent economic growth in recent years - as I did in this post here - one thing certainly stands out clearly enough, and that is the underlying sea change which has taken place in Argentina's demography.


As is evident even from the most cursory glance, Argentina's fertility rate has been falling for many years now, and at this point just about to go below the population replacement level.

This fall in the fertility rate has lead to a steady slowing down of the rate of increase in the number of children born, and since 2000 the number has leveled off, and even begun to fall back slightly.



At the same time life expectancy has been improving steadily.



Most notably life expectancy has been approving among the young and poor, and in particular this can be noted in the steady decline in infant mortality which has been taking place in Argentina.

As a result of these processes Argentina's population is still increasing, but again at a much slower rate than hitherto.

One consequence of all of this is that the percentage of the population in the 0 to 14 age group has been declining steadily from the high point reached at the end of the 1980s.


All of this is producing profound changes in Argentina's age structure, changes which are associated with what is known in an economic context as the demographic dividend. These changes can be seen reasonably clearly in the following population pyramids which are for 1990, 2000 and 2010 respectively. Looking at the pyramids we can see how their shape begins to change, and particularly in the third pyramid we should note how the steady stabilization, and then subsequent decrease, in the number of children born means that the generation size starts to shrink. It is the appearance of this change at the base of the pyramid which is the most typical indicator of the presence of the demographic dividend.

There are a number of reasons why changes in age structure affect economic performance (the growing proportion of the population in the working age groups, for example, or the much healthier working population), but one of the most important of these in the context of a developing economy like Argentina is undoubtedly the impact that such changes have on saving and investment. Basically the relative decline in the proportion of young children frees off a greater proportion of national resources for saving and investment, and it is this process which means that the dependence on external funding begins to decline. A similar process has been observed in China since the late 1990s, and is now being observed in India.



Also we can note a slight but perceptible decrease in the consumption share in GDP in Argentina in recent years from 78.5% in 2004 to 76,6% in Q2 2007, and a steady increase in the investment share from 17.8% in 2004 to 21.1 in Q2 2007. These are again features that tend to be noted as the demographic dividend works its way through and the declining pressure of immediate consumption which comes from a lower proportion of under 15 year olds frees off more national resources for saving and thus for investment.



To Cry.... or To Laugh?


So to end where I started, with a question - should we be crying right now for Argentina? My answer would be most definitely that we should not. There may be a lot - a hell of a lot - wrong with the way Argentina is being run, and some of the issues arising have been addressed in this post. But the underlying situation in Argentina is far from being a tragic one this time round. History it sometimes seems is condemned to eternally repeat itself in Argentina, now as tragi-comedy, and then again as surreal farce, but there does seem to be a line of advance there, and this time round the line of advance might just lead to real economic development.

Clearly Argentina needs to move away from such 'old-school' practices as manipulating the statistical system. And clearly Argentina also needs to move forward and attract Foreign Direct Investment in a greater quantity than hitherto in order to modernise its energy sector and indeed its infrastructure generally. But the present situation is far from being a hopeless one, and reform is not only possible but probable. Not only that, more by accident than design Argentina may go into the next global growth slowdown better equipped to be able to withstand the pressure than many others. If so this will also be a test, a test for the relative importance of institutional quality when measured against the driving force of demographic tailwinds. The outcome of this test promises to be interesting, most interesting, and for all of us.

References

Further reading on the topic of the Demographic Dividend, which at the end of the day provides the theoretical prop which underlies this post, can be found in:


The Economics of Demographics, Special Issue of the IMF publication Finance and Development, September 2006.

Global Demographic Change: Dimensions and Economic Significance. David Bloom and David Canning. Harvard School of Public Health. Working Paper No. 1

The Demographic Dividend. Demography Matters own category section, with a collection of our posts on this topic.

Catch Up Growth and Demographics - Evidence from Eastern Europe

By performing a series of adept Googling exercises various sources on the internet will tell you that certain species of the lynx are able to travel at speeds of up to 50 kph (31 mph). Wikipedia informs us that the Eurasian lynx, on average, commands a hunting area of between 20-60 square kilometers in which the lynx is able to walk and run about 20 kilometers in one single night. All in all, a pretty rugged and constitutional little thing this lynx.

In this way, and perhaps because, at that particular point in time, the Eastern European Economies looked as if nothing could come in their way of economic prosperity and growth they were paired, by the Economist, with the region's sturdy feline coining the notion of 'Lynx Economies.' Thus, 'that particular point in time' was sometime back in the spring of 2006 where the Economist's (and my own) coverage of the CEE and Baltic economies came in hot on the heels of publications by the World Bank and and the Vienna Institute of Comparative Economic Studies speaking favorably of the future prospects of economic prosperity and thus 'catch-up' growth in the CEE and Baltic Economics.

Yet, merely 1 year and a tad later things seem to have changed quite significantly with respect to the discourse on the economic situation in Eastern Europe. Many of the contributors to this blog has been pitching on the change in discourse but also some of major institutional actors have been flagging the red banner. Not least the World Bank seems to have changed their attitude somewhat with most notably a recent report on the demographics of Eastern Europe entitled From Red to Gray - The Third Transition of Ageing Populations in Eastern Europe and the former Soviet Union as well as a recent writ with specific focus on the macroeconomic risks prevailing in the region. Yet, also the IMF in their latest World Economic Outlook devotes a chapter to the managing of large capital inflows where Eastern European economies also take center stage of the general tone of warning; in essence this note of warning concerning Eastern Europe seems to be the general talk of the day amongst economic analysts and journalists. As such, perhaps even the lynxes roaming the forests and planes of Eastern Europe are beginning to feel that the otherwise catchy notion conjured by journalists at the Economist is becoming something of a stretch according to the reality of the situation. Sure, things are moving fast now but it is what happens next which might finally serve to make the allegory rather unrealistic. In this entry I set out to explicitly investigate an issue which in fact has been treated several times on this blog and perhaps most often in the context of the CEE and Baltic Economies. Simply put and in the form of one simple question;

• How do changing demographics and more specifically the final and ongoing stages of the demographic transition affect the notion and principle of economic catch up growth and thus economic convergence as it is stipulated by (neo-classical) economic growth theory?

As I have hinted above in the introduction my main subject of analysis on which the general theoretical argument is based is the current and ongoing situation in the CEE and Baltic economies. A lot has been written about this recently not least from the hands of the contributors to this blog (see also above). As a one-stop overview of the concrete issues at hand this recent note by Edward over at Global.Economy.Matters should provide you with suitable ammunition to get you started. In particular, the following three point overview of the current economic situation in Eastern Europe should always be in the back of your mind as we move forward from this point ...

Basically the principal outstanding issues confronting the EU10 countries are threefold:

• Labour capacity constraints (which are normally a by product of long-term low fertility and large scale recent migration flows) are producing significant wage inflation and strong overheating.

• A structural dependence on external financing - which is in part a by-product of the effect of low levels of internal saving, and which is another factor which separates the EU 10 from those like India or China who are benefiting from a typical demographic dividend driven catch up, is leading to large current account deficits, and potentially high levels of financial instability.

• A loss of control over domestic monetary policy due to eurozone convergence processes which - with or without the presence of formal pegs - make gradual downward adjustment in currency values as a alternative to strong wage deflation virtually impossible. This issue is compounded by the likely private "balance sheet consequences" of any sustained downward movement in the domestic currency given the widespread use of mortgages which are not denominated in the local currency.

Traditionally a rigorous economic analysis in the light of the immediate events would focus a lot on point 2 and 3 but in this note we shall look specifically at number 1 and the issues of labour capacity, its constraints, and what it means of the economic growth of less to medium developed countries. Now, the most obvious caveat in this entry is that I really don't have the time at this point to really lay out the whole theoretical framework of economic growth theory and as such the precise slot in which my argument should be inserted within the wider theoretical framework. This will be the topic of a more rigorous article not suited for the blog format. However, I still need to attach some comments to set the scene where I should also immediately note that my previous note here at DM about catch up growth in Eastern Europe serves as a good state of the game post for what comes next.

Apart from my studies of selected pieces of the economic growth literature one of the best overviews of the concept of economic convergence as a function of the theoretical and practical assumptions vested in the growth models is to be found in an article by Norbert Fiess and Marco Fugazza on economic integration in Europe (PDF). As such it is important to note that convergence of GDP per capita levels is not a holy grail within the fields of economic growth theory. Rather, the process of convergence should be seen as an inbuilt consequence of the fact that as economies mature returns to production inputs decrease; that is to say that this discussion essentially revolves around the concept of increasing v. decreasing returns to scale in our economic model. If we think about decreasing returns to scale and introduce the concept of marginal productivity to production inputs we can then see that less developed countries are likely to exhibit higher rates of growth than their more mature counterparts in the sense that their marginal productivity is higher which then leads to a process of convergence. Now, this argument in its most strict sense is usually applied in the context of capital as a production input and coupled with the properties of an open economy and subsequent free flow of production factors this would lead to a rather rapid process of convergence or absolute convergence as the technical term. As regards to labour as a production input is has also been argued that the universal transition from an agricultural to manufacturing over to service (?) based economy produces a mechanism of convergence in the sense that this process implies a move up the value chain and thus that every unit of labour becomes more productive. Of course and even though we are talking about stylised facts here, this is also where the whole debacle begins in the context of my immediate argument because how certain is this process? Also, we need to take into account the distinction between stocks and flows (of labour) which is a crucial issue to consider when talking about ageing economies.

However and it does not take much of an economist to see that empirical facts do not support the idea of absolute convergence or at least it seems as if the process takes much longer to materialize than predicted by the theory. This has lead, among other factors, to a 'new' strand of economic growth models which allows for persistent growth divergence to exist between countries. The crucial aspect to understand here is the mechanism through which persistent divergences can occur. In this way, one of the widest contributions by economist to this thesis has dealt with the possibility that technological processes and thus accumulation of technological advances exhibits increasing returns to scale. The fundamental brilliancy of this notion is that it allows for a model where there is indeed decreasing returns to labour and capital but where different levels of technological effort leads to internal positive feedback mechanisms and thus explains persistent divergences in growth and 'prosperity' across countries.

Ok, I think that I have already said enough at this point and in order to get us back to track one crucial assumption and conceptual idea needs to be pinned down. As such and if we look at the rudimentary description of the economic growth process above it is not wholly unreasonable to argue that the growth process of an economy is somewhat directly related to the process of the demographic transition. Or as Robert Lucas puts it in a widely cited article ...

That is, the industrial revolution is invariably associated with the reduction in fertility known as the demographic transition.

As such, why don't we take a look at Eastern Europe where the economies have experienced, quite as expected by the conventional theory of economic growth, economic dynamics tantamount to catch-up or convergence. Especially the economic data since the expansion from EU15 to EU25/27 and, for some countries, the subsequent anchoring to the Euro has been very impressive indeed. Yet as Edward and I have been at pains (see link above) to explain again and again these countries are not your average emerging markets. This follows from the fact that their demographic structures have been fundamentally distorted due to a collapse of fertility in the beginning of the 1990s which has been aggravated by a persistent net outflow of migrants serving to further speed up the decline in the working and essentially also most productive cohorts. In order to capture this development and in order to frame the current situation the following point I made in a previous note is worthwhile to repeat.

In short, we are dealing with countries where the demographic transition by far, and indeed worryingly, has out paced the traditional economic process of economic convergence.

This is exactly what we are talking about here and apart from going to the heart of the imminent issues in Eastern Europe it also strikes right smack into the concept of economic growth theory and how to deal with the fact that the demographic transition does not occur the way it was originally anticipated. Most emphatically, we can see in the context of the Eastern European countries that the final stages of the transition have arrived far before and quicker than the twists and turns of history allowed for these economies to really get on with business. Yet, the general argument can just as easily be expanded into a discussion of the ageing part of OECD where it is painfully clear at this point that conventional economic theories are wholly incapable of explaining what is likely to happen next. In fact, we could stretch it so far as to say that modern economic growth theory is not able to explain what happens when fertility drops to a level below replacement level and stays there!

In Summary

Even though that a lot words have been written in this entry I am afraid that only superficial contributions have been made to the final answer of the proposed question. This entry principally had one main task, namely to initiate a line of reasoning which ultimately and hopefully can lead to a better understanding of modern economic growth processes in a context of the current demographic profile of many developed and developing economies. Specifically, this entry revolved around the concept of catch-up growth/convergence where the countries in Eastern Europe were suggested as an example to demonstrate how demographics can fundamentally alter the principles by which the economic growth process is likely to conform. In this way, the message is not that modern economic growth theory and growth accounting methods are rendered obsolete in the face of changing demographics but rather that considerable adjustment needs to be made; especially in the context of catch up growth/convergence but also crucially in the context of the notion of a steady state of economic growth. Returning briefly to the real world before we sign off it could seem as if the branding of the lynx economies never was more than a quick and essentially expensive make-up which is set to quickly wear off as we venture on. Specifically, recent signs coming out of the ECB and the European commission suggest that expectations are aligning towards an outlook where the process of convergence effectively risks grinding to a halt. My advice would then be not to exchange the carrot too swiftly into a stick since this would only serve to kick those who are already on the ground.