Population and Development

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Population and Development

• Nancy Birdsall, Senior Associate
• Carnegie Endowment for International Peace
• Core Course on Adapting to Change Population,
  Reproductive Health and Health Sector Reform,
  World Bank
• September 11, 2001

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2 Major Messages from Recent Studies

• Slower population growth creates the potential to
  increase the pace of aggregate economic growth
• Rapid fertility decline at the country level
  helps create a path out of poverty for many
  families

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• I. Growth
• II. Poverty
• III. Policy Implications

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I. Growth

• New Findings
• Recent studies of effects of demographic change
  on growth help explain the past experience of
  different countries and regions (slow growth in
  Africa versus the burst of growth in East Asia,
  1960-1995)
• The demographic experience of East Asia is good
  news for countries on a similar path of fertility
  decline (e.g., Latin America and more recently,
  Africa)

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After a decade of controversy, these findings are
clearer and more credible because they
I. Growth

• Benefit from four decades of demographic and
  economic change in developing countries, building
  on a longer period of good data
• allowing researchers to unbundle differing
  effects of different age structures on growth in
  different economic settings . . .
• indicating that among demographic changes of the
  last 3 decades, increases in the size of the
  working-age population are positively associated
  with economic growth while increases in the size
  of the age group 0 to 15 are negatively
  associated with growth.

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Demographic Transition in the Developing World
I. Growth
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The Role of Changing Age Structure
I. Growth

• Actual and Projected Age Dependency for
  Developing Countries, 1950-2050

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Age Dependency Ratio by Region
I. Growth
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Ratio of workers to dependents
I. Growth
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Changing Age Structure Produces A Demographic
Bonus
I. Growth

• During period (2) (50 years for Asia and Latin
  America), the ratio of workers to non-workers is
  unusually high and increasing.
• During this demographic bonus time more workers
  are potentially producing more total output,
  greater wealth accumulation, and an increasing
  supply of human capital.
• The changing age structure is driven mostly by
  fertility decline.

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Age Dependency Ratio by Region
I. Growth
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The Effect On Savings
I. Growth

• An increase in the worker-dependent ratio can
  increase savings and investment
• In the case of East Asia, the increase in that
  ratio and the associated increase in savings can
  be associated with 1/3 of the total 6 average
  annual per capita growth rate, 1965-1990

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I. Growth
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But the Policy Environment Matters
I. Growth

• Benefits from a demographic bonus depend on
  the policy context. In East Asia, demand for
  labor rose rapidly, absorbing rising supply at
  rising levels of labor productivity. What
  happened?
• 1. Fiscal discipline
• 2. Open and competitive markets
• 3. Public investment in education and health
  care
• In Latin America, the demographic bonus has been
  less effectively exploited.

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Institutions Matter Too
I. Growth

• 1. Rule of Law
• 2. Property Rights
• 3. Political Stability
• Policies and institutions moderate negative
  effects of rapid population growth, and reinforce
  positive effects of the demographic bonus.

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Reinforcing effectsEndogenous factors can be
important
I. Growth
Higher life expectancy good policy environment
Higher economic growth
Technological change
Lower fertility Higher life expectancy good
policy environemnt
Higher sustained economic growth
In East Asia, there may have been no ultimate
cause, only a process
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Poverty and Fertility Change On the one hand...
II. Poverty

• The association of high fertility with high
  poverty does not prove that one
  causes the other
• Moreover, even if poverty leads to high
  fertility, that may reflect parents sensible
  decisions to trade off current consumption for
  greater future family income (when children begin
  work, or for greater old age security)
• So, economists have traditionally hesitated to
  endorse policies and programs to reduce fertility.

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On the other hand...
II. Poverty

• New studies confirm that fertility at the country
  level does appear to increase absolute levels of
  poverty by
• 1. Slowing economic growth and growth-induced
  poverty reduction
• 2. Skewing distribution of consumption
  against the poor

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1. Slowing economic growth and poverty reduction
II. Poverty

• Household surveys in Brazil show that the decline
  in poverty associated with what has been a
  dramatic reduction in fertility is equivalent to
  what would have been produced by a 0.7 greater
  annual increase in per capita GDP.
• An analysis of 45 developing countries reveals
  that had the average country reduced its birth
  rate by 5 per 1000 throughout the 1980s, the
  average country poverty incidence of 18.9 in the
  mid-1980s would have been reduced to 12.6
  between 1990 and 1995.

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2. Skewing distribution of consumption against
the poor
II. Poverty

• The distribution effect
• The conversion effect

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Moreover, high fertility may not even be optimal,
even for poor families. Why would poor parents
make non-optimal decisions?
II. Poverty

• 1. Poor parents have severely constrained
  choices. The apparent alternative of fewer
  higher quality children does not exist, if
  capital markets are imperfect and public spending
  on health and schooling is inadequate. The poor
  often are members of ethnic minorities and
  other disadvantaged groups, reducing returns to
  quality of children.
• 2. The poor may lack critical information. The
  market for information is far from perfect. The
  poor often lack information on declining infant
  mortality, increasing returns to schooling, and
  improving financial markets.
• 3. Men may dominate the choice in of children,
  while not fully sharing the costs.

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And evidence increasingly suggests
II. Poverty

• A higher prevalence of unwanted pregnancies among
  the poor
• A strong response to reduced costs of controlling
  fertility. (In the last decade, fertility has
  fallen among the poor and uneducated who had
  access to health and family planning services.)

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The poor may have more childrenbut not only
because they are poor
II. Poverty
The Fertility Gap and Returns to Education in
Latin America
Peru
Paraguay
Honduras
Bolivia
Explained by Rates of Return
Brazil
Explained by Education Levels
Panama
Unexplained
Argentina
Ecuador
Chile
Costa Rica
Uruguay
El Salvador
Mexico
Venezuela
-0.5
0
0.5
1
1.5
2
2.5
3
Note The fertility gap is calculated as the
difference in the number of children per
household in the top decile to the bottom three
deciles
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II. Poverty

• So, both theory and improved and expanded
  empirical efforts support the likelihood that
  high average fertility at the country level hurts
  the poor, and that their own high fertility can
  contribute to their and their childrens poverty

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Policy Implications
III. Policy Implications

• 1. Undo existing policy-induced distortions
• 2. Ensure economic policies that strengthen
  land, labor, and financial markets
• 3. Invest heavily in education and health
  programs
• 4. Improve status of women
• 5. Subsidize voluntary family planning and
  information services