Macroeconomics, Poverty, Population and Development

	The Demographic Window
	Fertility Decline and Economic Growth
	Globalization and Poverty

The Demographic Window

There is solid evidence, based on two generations of experience and research, that there is a "population effect" on economic growth. Since 1970, developing countries with lower fertility and slower population growth have seen higher productivity, more savings and more productive investment. They have registered faster economic growth.

Investments in health (including reproductive health) and education needs, and reducing gender inequality, have contributed to this effect. These investments attack poverty directly. They empower individuals, especially women. They enable choice. Given a real choice, poor people in developing countries have smaller families than their parents did. This downturn in fertility at the "micro" level translates within a generation into potential economic growth at the "macro" level, in the form of a large group of working-age people supporting relatively fewer older and younger dependents.

This demographic window opens only once. Several countries in East Asia and a few others have taken advantage of it. The effect of declining fertility in Brazil has been equal to economic growth of 0.7 per cent of GDP per capita each year (1). Mexico and other countries in Latin America have registered similar effects.

Countries that have ignored the potential benefit have done less well. They have not made the necessary direct investments in poor people. They lack the good governance and social accountability that ensures that some of the benefits of economic growth go directly to the poor and towards alleviating poverty. The demographic window will close within a generation, as populations age, and with it a historic opportunity.

It will be a long time before the demographic window opens for the poorest countries, but work towards it now will safeguard the future. It will also protect the present. Pregnancy and childbirth are heavy risks for poor women. Many, and unplanned for, children impose a heavy burden on them. High levels of fertility contribute directly to poverty, reducing women's opportunities, diluting expenditure on children's education and health, precluding savings and increasing vulnerability and insecurity.

Additionally, the poor suffer from the direct effects of their numbers: lower wage rates for large pools of unskilled workers, landholdings divided among more inheritors, classes too crowded for educational improvements. High fertility means that poor people have less capacity to take advantage of opportunities to lift themselves out of poverty.

The big question for national leaders, legislators, policy experts and decision makers is whether to make the necessary changes in policy and practice in the next decade; and whether the international community will make the necessary efforts to help them succeed. If they do, women and men will be healthier and better educated. They will have access, among other things, to a full range of reproductive health information and services. Fertility and population growth will fall. The demographic window will be open for the next generation. Mass poverty could become a matter of history, not a threat to the future.

LEARNING FROM EXPERIENCE Intuition tells us that rapid population growth in poor countries expands the demand for services such as health care and education faster than the capacity to satisfy it. It is equally obvious that economies need to grow in order to reduce poverty. Experience has deepened and refined both of these perceptions, and taught some lessons about how to break out of the vicious circle of increasing demands and overstretched resources.

Evidence supports the perception that large families and rapidly growing populations hold back development. First, in the household, children have a variety of needs, all of which have a cost. A large number of children compete for limited family resources for food and clothing, health and education, and some are left behind. In rural communities, farmland is a fixed resource. Dividing it too often impoverishes successive generations. Without resources for development, supplies of fuel or water must also be shared among growing numbers. In urban communities, those without some education can find only low-level, ill-paid work, if they can find work at all. Most countries officially frown on child labour, though implementation varies, and it is becoming socially and politically unacceptable from a humanrights perspective.

Second, at the national level, rapidly growing numbers of relatively unskilled workers force down wage rates and reduce savings. Spending on health care, education and other services for large numbers of children further reduces savings. Since economic growth comes from investment, and funds for investment from savings, rapid population growth acts as a brake, not a spur (2). The chances for development are greatly improved if external resources are available to invest in health and education, support innovation, and find ways for people to build their savings. Countries also need to generate and redirect domestic resources for health and education.

UNDERSTANDING THE RELATIONSHIP The impact of population growth on economic development has been debated along these lines for decades. With hindsight, we can see that many positions were based on poorly framed questions and inadequate responses. Much of the research questioned whether population growth restricted, promoted or had no overall effect on economic growth. Another debate asked whether economic growth was a precondition or consequence of slower demographic growth.

Both arguments revolved around aggregate growth in population and the economy, but the chances for economic development and poverty alleviation do not depend only on aggregates. Data on over four decades of economic and demographic change provide new insights into how development prospects are shaped (3).

In 1986 a study on relationships between population and development from the National Research Council in the United States concluded that, despite its important effects at the household level, population growth had no effect on overall economic growth (4).

This seemed to settle an old argument. But the council's study did not have all the evidence. It used data from the 1960s and 1970s, when many countries were still relatively early in the "demographic transition" from high to low birth and death rates, and when centralized planning prevented some countries from making the most of increasingly favourable population dynamics. The study continued to rely on analyses of aggregate growth, both in population and economic development.

BETTER DATA, BETTER ASSUMPTIONS In the 1990s the scientific community looked at the question again. By this time it was possible to use data from longer periods, during which the demographic transition progressed in many countries. This time the conclusion was different. More important, researchers recognized that the demographic transition was reflected in changes in the age structure of populations-as life expectancy increased and fertility declined-not just in decreasing aggregate growth rates.

TAKING ADVANTAGE OF THE OPPORTUNITY The change from high to low mortality and fertility can create a "demographic bonus" for countries. Mortality declines first, followed by fertility. What happens as fertility declines is that the working-age population increases relative to younger and older dependents. That creates a one-time opportunity for growth. The opportunity can be realized if countries have made the appropriate investments, not only in family planning, but in health and education generally, with special attention to the needs of girls and women, and in employment opportunities for the new and enabled workforce. Open and responsive governance makes these adjustments possible.

Such a combination could be seen in the "Asian tigers" of the 1980s and 1990s: while the proportion of their working-age populations (15-60 (5)) started to increase as late as the mid-1970s, the pace of change was extremely rapid up to the early 1990s. They made the supporting adjustments of investments in health and education early in the development process, and also created a framework for more open markets and social participation (6). The relative growth of working age populations in these countries will continue for another decade, though not as rapidly as in the past. This is a once-only opportunity, a demographic window that opens as the numbers of younger children decrease because of lower fertility, and closes as the proportion of older people starts its rapid growth.

REGIONAL PATTERNS Many countries are entering the transition period. South Asia will reach its peak ratio of working-age to dependent-ages between 2015 and 2025 (though with considerable national variation). In Latin America and the Caribbean, the relative increase in the working-age population started at least five years earlier than East Asia, but the proportional change has been less marked, reflecting the wide disparities within countries and regions. The wealthier groups have completed the demographic transition to lower fertility and mortality, but poorer ones continue to lag. The peak proportion in working ages will be reached during the period 2020-2030, but at a slower rate and a lower level than in East Asia.

The countries of North Africa, and Western Asia and Central Asia are at a variety of stages in the demographic transition (7). Some will be approaching their demographic opportunity within two decades, while others are over a generation away. These countries have an opportunity to establish within one generation the frameworks for accelerated social change and economic growth. The demographic window in Oceania is narrower. Fertility was never as high, nor did it drop so fast as in East Asia. Nevertheless, some of the same considerations apply.

In sub-Saharan Africa the median age of the population of the entire region is only 17.6-that is, half the population is below that age. Meanwhile, the working-age proportion of the population between 15 and 60 (50.9 per cent) is lower than it was in 1950 (52.5 per cent). Poverty imposes severe handicaps-severe resource constraints, underdeveloped health infrastructure, social instability, high debt, weak governance and the HIV/AIDS pandemic. Nevertheless, a growing number of countries are beginning their demographic transition. Continued progress will depend on the availability of reproductive health services including family planning.

Only six of the 46 sub-Saharan African countries have populations with median ages as high as 20 years (the median age in more-developed regions is now around 36). By 2050, the regional median age will reach 26.4, lower than more-developed regions a century earlier. The working-age population will increase to 62.2 per cent by 2050. Only 11 countries are projected to reach their maximum working-age proportion prior to 2050 (and eight of these will do so between 2040 and 2050).

FUTURE PROSPECTS Even beyond the 15-year horizon of the Millennium Development Goals, population trends will affect the prospects for a sustained attack on poverty. Population momentum and high levels of unwanted fertility threaten economic gains already made. Pervasive gender inequality could undermine the goal of universal access to reproductive health services.

The HIV/AIDS pandemic further imperils the chance for many of the poorest countries to consolidate their gains and open the "demographic window". The growth of working-age populations relative to young dependent populations is crippled by rapid growth in adult deaths. The disease both devastates the present and steals the future.

SPENDING THE BONUS The "demographic window" opens only once, and for a limited time. Most industrial countries have already settled into a pattern of gradually increasing life expectancy and continued sub-replacement fertility. In these countries, the imminent prospect of population declines and rapid growth in older age groups are already stimulating intense discussion. The debate ranges far from demographics and has touched on race relations, welfare policies, and the state of marital relations in two-income families (8).

Some observers suggest that immigration is part of the answer, and immediately tap into emotional issues about national identity and social tensions among "ethnically different" groups. Others raise questions about financing old-age pensions and health care for the very old, but they often underestimate the variety of possible adjustments and reforms, or the time available in which to make them (9).

Changes in the proportion of older people may have less economic impact than fluctuations in younger age groups (10). It cannot be assumed that the elderly (except the "oldest old") are dependent and a burden on the economy. Continuing economic activity among the elderly, personal savings, family support and public programmes may combine to form new markets and changing demand for goods and services. They can also supplement pension and health system adjustments.

On balance, the effect on economic growth might be positive (11). But both developing and industrial countries need to understand how long-term demographic change works; they must base their policy on rational expectations rather than emotional responses.

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