The Demographic Dividend
Firstly, a quick hello and thank you to the Indian Economy Blog Team for inviting me to be a guest poster here.
In this post I basically want to draw attention to a research article by Deutsch Bank’s Sanjeev Sanyal ( Demographics, Savings and Hyper-Growth). While I was chasing the link however I stumbled across this piece ( India as a global power? published 16 December 2005 ) on the Deutsche Bank site, and I guess it might be of interest to people.
I actually came across Sanjeev’s research report when reading the acknowledgement and sources page which accompanied the Zanny Minton-Beddoes world economy survey in the Economist back in September. In fact the sources page contains a mountain of information about the global economy for anyone who is really interested.
So what is Sanjeev’s argument? Well basically that the world is currently experiencing a major demographic shift, as the mature economies start to become greying economies and the youthful economies of the underdeveloped world start to mature. There is a growing consensus among economists that these changes have played an important role in driving Asia’s economic transformation by generating high savings rates, increasing openness and growing political stability. The savings part is perhaps much more evident in China’s case than it is in that of India, although, if we take median ages as a measure, India (at 24) is still considerably younger than China (at 32). So in demographic dividend terms India still has most of the bonus out there in front of it.
Sanjeev makes many valid and interesting points, and the report is well worth the read. Here I would just single out one detail. If you look at the graph which shows on page seven, and which compares the evolution of working age population in India, China and Japan it should become clear why the future may well belong to India. China, by applying an excessive neo-Malthusian one-child-per-family policy has basically given itself a huge demographic shock. This means that the Chinese labour force will peak around 2015 - 2020 and then will start to decline. Since it is not at all realistic to imagine that China could rely to any significant extent on immigration, whereas the US can, China may well be ageing much more dramtically from 2020 - 2050 than the US will be. India’s demography, while of course far from perfect, is in fact much better over the long haul. So here, at least, is one possible reason for optimism.
So, to close with a bit of controversy: demography matters, and in particular median age matters. This weekend the world press is full of news articles about the victory of Evo Morales in the Bolivian elections. There is even talk about Morales and Chavez forming a policy ‘axis’ running across Latin America. Now what (apart from their presidents) do Bolivia and Venezuela have in common (and for that matter Ecuador). Well obviously natural resources, and a heavy dependence on them, but beyond that they share a similar age structure. I have put up on my website a comparative median ages page, and certian things should be clear from looking at it. One of these might be the difference between countries like Venezuela and Bolivia, and others like Turkey, Argentina, Brazil or Chile. All these latter countries have entered a different age category (as has India, naturally), and this shows-up in their increasing stability, and more favourable attitudes to economic openness. All of which raises the question as to whether this type of underlying institutional transition is not in fact endogenous to that other, larger, transition : the demographic one.
[...] 217;s Window Of Opportunity. This is a rerun of many of the arguments that can be found in this earlier post of mine. There are one or two nice extra details though. Especi [...]
Pingback by The Indian Economy Blog » Blog Archive » More On India’s Window Of Opportunity — December 27, 2005 @ 1:09 pm
If India cannot provide enough jobs for the current number of young people, why do you think it is a bless for even larger number of them to enter workforce ( or unemployment)
Comment by R-Squared — January 28, 2006 @ 11:20 am
The discussion of Demographic trends is interesting in itsef however it seems to be incomplete without a discussion on emigration and the capital sent back by expat communities. Sanyal’s articles seems to be based on the fact that Hyper growth economies will be exporting capital but it does not take into account the huge amounts of capital being sent back by the Indian and Chinese expat communities which are each larger than the population of the United States. This is capital coming back for emotional reasons and which the western markets have no way of holding back regardless of how “safe” they seem. There is also a total disregard of the huge capital flowing out of western countries to Russia as Russia finally opens up full throttle and exports its oil. While some may say this is no different from say Saudi Arabia exporting oil but the crucial difference is that Saudi spends the money they get importing goods and arms from the western economies while Russia does not need to import weapons from the West. This means that a lot of capital will get transferred to Russia from the West.
Comment by PG — January 30, 2006 @ 3:04 am