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Harnessing the Demographic Dividend: Lessons From the World Development Report 2007

April 17, 2007 // 12:00pm2:00pm
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The number of youth relative to other age groups in today's world is higher than it has ever been, and arguably higher than it will ever be. This peak in youth population presents the international community with a unique "window of opportunity," which, if seized, could propel growth and prosperity in developing countries. But if we miss this opportunity, the developing world could face widespread disillusionment, mass unemployment, and possibly a downturn in economic growth. Mattias Lundberg, a senior economist at the World Bank, and David Lam, professor of economics research at the University of Michigan's Population Studies Center, presented an overview of the World Bank's World Development Report 2007: Development for the Next Generation at a meeting sponsored by the Environmental Change and Security Program on April 17, 2007. Lam painted a picture of the world's current and future demographics; while Lundberg discussed the report's findings and recommendations for harnessing the "demographic dividend."

World Demographics and Youth

Of the world's more than 6 billion people, 1.5 billion are between the ages of 12 and 24. Of that subset, 1.3 billion live in developing countries, according to Lam. While the youth population is steadily declining in China and Thailand, high fertility rates in other countries, primarily those in sub-Saharan Africa, continue to keep the number of youth high. The current global peak is the result of "population momentum," explained Lam: Today's youth are the children of the "population explosion generation" in the 1960s, which was largely the result of a significant increase in child survival. As this generation reached childbearing age in the 1980s, a wave of high birth rates produced today's youth. Population momentum is counterbalanced by falling fertility rates, Lam noted: "[In the 1980s], falling fertility finally wins the race against population momentum, and we get a peak and begin to decline."

The Demographic Dividend

A substantial increase in the size of the labor force can lead to greater per capita output and economic growth, producing the "demographic dividend." The dividend most often occurs in countries late in the demographic transition, when birth rates are falling. Resources shift from dependent children and elders to youth—the age group that comprises the bulk of the productive labor force. While the large number of youth can put pressure on schools, labor markets, and services, Lam noted that the declining dependency ratios of the demographic dividend also allow for increased investment in education and family welfare.

"We have an unprecedented opportunity to invest in youth," said Lundberg. "Youth will enter the work force at a time when there are relatively few dependents—not as many young children as before and not so many old people." Lundberg argued that a quarter of the economic growth of the "East Asian Tigers"—Hong Kong, Singapore, South Korea, and Taiwan—was due to the demographic dividend: "Strong education and broader health systems combined with more liberal trade regimes, and enabled national economies to absorb this boom generation into the work force."

However, one audience member noted that large youth cohorts can lead to surges in political violence, such as that experienced by some of the East Asian Tigers. According to Lundberg, other factors, such as economic decline and weak institutions, must exist for violence to occur; the demographic dividend should be recognized as an opportunity, not a burden. But he also added that the positive economic effects of the demographic dividend are by no means automatic. Latin America's youth population also peaked in 2005, and yet economic growth similar to that of the East Asian Tigers has not materialized.

Harnessing the Dividend

For large youth populations to translate into economic growth, the international community must provide more opportunities, capabilities, and second chances for young people, argued Lundberg. But he emphasized that while opportunities are necessary, they are not sufficient—they should be coupled with education about alternatives to early marriage, proper nutrition, and family planning. "We often focus on the supply side—providing services, providing health care, education services, and so on—with the assumption that if they have them, people will make the best decisions," he said.

Fostering the conditions for individual decision-making and creating proper incentives could lead to better outcomes for youth, said Lundberg. For example, a study revealed that in Bangladesh a mere 4 percent of the surveyed population aged 15 to 24 answered "myself" when asked who decides about marriage, in comparison to 82 percent in Malaysia and 65 percent in Iraq. According to Lundberg, supporting individual decision-making for youth could tighten the knowledge gap in critical areas like health. For example, greater individual decision-making could increase the percentage of women who know that condoms prevent HIV/AIDS, as well as the percentage who use them. Proper incentives, such higher taxes on goods such as cigarettes, could encourage youth to make better decisions.

Youth need second chances, according to Lundberg. Primary schools should cater not just to 10-year-olds, but also to 19-year-olds who may have returned to school and require very different instruction than children. Also, countries should support restorative justice programs to help eliminate the "criminal capital" that incarcerated youth often develop from exposure to other lawbreakers.

Where and When To Invest

Timing is critical to harnessing the demographic dividend. In some countries—China, Brazil, and Vietnam, for example—Lundberg said that we have "missed that demographic window of opportunity," as the relative numbers of youth are now decreasing and dependency ratios are increasing. But in Egypt, India, and the Philippines, the window is still open: the number of youth relative to other age groups will continue to rise until 2015 when the relative number of youth will begin to level off and eventually decline, the World Development Report projects. Countries in this situation have the opportunity to bolster support for youth and potentially advance their economies.

The economic implications of the demographic dividend are especially pertinent to sub-Saharan Africa, which is composed of what Lam called the "late fertility decline countries." The World Development Report states that the numbers of youth in these countries are expected to continue to grow for several decades before the critical window of opportunity arrives. Lundberg stressed that if the international community can mobilize support for youth during sub-Saharan Africa's window and encourage it to follow the model of the East Asian Tigers, it could achieve great progress in fighting poverty in this critical region.

Drafted by Karima Tawfik.

 
Event Speakers List: 
  • Professor, Department of Economics Research, Population Studies Center, University of Michigan
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