The Other Half of the Demographic Dividend

Starting with the legendary debate between Marx and Malthus, economists have been divided into two camps when it comes to viewing the relationship between population growth and economic growth. The population “pessimists” have argued that rapid population growth inhibits development by reducing capital per worker and dampening productivity (Cassen 1994). The population “optimists” have argued the opposite, that rapidly expanding population can increase human and intellectual capital and furnish expanding markets, leading to economic growth (Kelley and Schmidt 1996; Johnson and Lee 1986). In recent years, a third approach has emerged which suggests that population size is less important than population composition. Building on the experiences of the east Asian economies, this line of research argues that fertility decline leads to reduction in the number of children and increases the ratio of workers to nonworkers for a few decades. Over this period, countries will need to spend less on education and other services for the non-workers, while enjoying the productivity and the savings boost provided by a large proportion of working age population. Dubbed the “Demographic Dividend”, this phenomenon has often been seen as a reward for fertility reduction (Bloom et al 2003).

(Bloom et al 2003). In the Indian policy discourse, another aspect of the demographic dividend has drawn considerable attention. Analysts of the Indian age structure gleefully note that rapid fertility reduction through a stringent one-child policy has led to sharp changes in China’s age structure. While resulting in short-term benefits through smaller child populations, over the medium term it will lead to a population pyramid in which a large number of elderly will be supported by a smaller base of working age population, resulting in a high dependency ratio. In contrast, having experienced a slower fertility decline, India will have a smaller dependency ratio and will reap the benefits of the demographic dividend (James 2008), particularly if the nation chooses to invest in skill development of this young population (Chandrasekhar et al 2006).