As fertility rates drop, it is evident that there are major economic and demographic consequences across the world. According to the researcher Melissa Pregasen, the replacement level of fertility at which the population will become stable is 2.1 children per woman given typical contemporary mortality levels. In other words, the average amount of births is necessary to keep the population stable. More than half of the countries in the world’s population are currently below the replacement level. The effects of this demographic change could have varying consequences, including the economic impact on a country. Demographic transitions, such as the change in the labor force population, have been shown to correlate with significant economic growth in countries that have experienced growth in the labor force population.
As fertility rates fall and the country ages, there is a period in the short run where a majority of the population is between ages 15 and 65. During this period, there are a large number of individuals of the working age. The increase in the labor force population is often expected to cause rapid economic growth because a large number of individuals can invest in the economy. This period with a large labor force population that causes an increase in economic growth is called the demographic dividend (5).
The demographic dividend is a period when a large labor force population correlates with significant economic growth. The researcher looks at whether the demographic dividend is expected to affect South Asia, a region at the cusp of significant economic growth. While South Asia’s working class makes up a large percentage of the population, the percentage of children and the elderly is lowered during this period. “The lowered percentage of this dependent population allows the working-age population to accumulate more funds for discretionary income. Thus, period of increased economic activity due to demographic change increases the savings rate, labor force participation of women, and education enrollment rates,” (6).
Pregasen utilized data from the United Nations Department of Economic and Social Affairs’ World Population Prospects 2019 and the World Bank’s National Accounts Data to conduct her research. By analyzing trends in the GDP per capita and the labor force, conducting regression analysis of the changes in the GDP per capita and labor force population percentage, and reviewing past literature in the field, Pregasen’s research explored the effects that the demographic dividend may have for the South Asia region.
In India, the peak of the demographic dividend is expected to hit around 2030. Since 1980, the labor force percentage of the total population, as well as the GDP per capita, has continued to rise. The results concluded that changes in the labor force were correlated with about a 3% change in the GDP per capita. Similarly, Sri Lanka saw increases in the GDP per capita. During this period, Sri Lanka did experience high increases in GDP per capita. However, the researcher concluded that changes in the labor force produce a negative change in the GDP per capita. Pakistan and Bangladesh are both expected to reach their demographic dividends around 2040. Additionally, both countries saw high spikes in GDP per capita during the early 2000s along with other countries in the South Asian region.
It is worth noting that while Sri Lanka has already undergone the period and saw large increases in GDP per capita, its economy continues to progress. “Further research into the trends and effects of GDP per capita and demography for Bangladesh and Pakistan is required as they are years away from their demographic dividend,” (27).
Melissa Pregasen is a graduate of the College of Social Sciences and Public Policy at Florida State University. This post was based on Melissa’s honors thesis, written by COSSPP Blog Intern, Jillian Kaplan.