Lecture 10 Population and Economy

World Population and Food Production

Indian Population and Food Production

Sub-Saharan African Population and Food Production

Real Prices of Metals

Real Commodity Prices

Percentage in Poverty by Region

 Population age structure changes at the aggregate level.  Lifecycle variation in consumption and production at the individual level. 8 Demographic dividend results from interaction between… (Bloom and Williamson 1998, Mason 2001)

The role of population growth in economic growth, debates From size to structure Unique opportunities – Fertility decline and age structure change (support ratio) – Labor force increase – Savings (longevity) – What is the demographic dividend? Population and economy

10 Lifecycle variation in consumption and production: Urban China, 2000

( Ronald Lee and Andrew Mason 2009) Life Cycle Production and Consumption

Congruence of Two Booms (Population Age Distribution, China) (Mason and Wang 2007)

Congruence of Two Booms (Population Age Distribution, China) (Mason and Wang 2007)

 Measures increase in standard of living (income per effective consumer) due to the productive population growing faster than total population  This occurs as a consequence of fertility decline 14 The first demographic dividend… (Bloom and Williamson 1998, Mason 2001)

 Support Ratio: Ratio of effective number of producers to effective number of consumers (weighted to adjust for age-specific variation in individual productivity and consumption)  Standard of living: Income per effective consumer  Productivity: Production per effective producer 15 Quantifying the demographic dividend: Some definitions

 This formula decomposes the growth rate of the standard of living into the sum of an economic component and a demographic component  The first demographic dividend is defined as the demographic component, i.e.. as the growth rate of the support ratio 16 Growth rate of standard of living = Growth rate of productivity + Growth rate of support ratio

 This is possible because the support ratio can decrease as well as increase  A 1-percentage-point increase (or decrease) in the growth rate of the support ratio generates a 1- percentage point increase (or decrease) in the growth rate of standard of living 17 The demographic dividend can be negative

18 Estimated demographic dividend, China, 1982–2050

 1982–2000: Especially favorable  Support ratio increased by 28%; average annual growth rate of support ratio was 1.3%  Demographic dividend accounted for 15% of China’s economic growth (8.4% annual growth of real GDP per capita, PPP adjusted—World Bank)  1.3/8.4 = 0.15 = 15% 19 First phase of China’s demographic dividend

 2000–2013: Projected support ratio continues to rise, but at a much slower pace  Support ratio increases by 4%, implying an average rate of growth of support ratio of 0.3% per year  Demographic dividend acts to increase standard of living by 0.3% per year 20 Second phase of China’s demographic dividend

 2013–2050: Sustained gradual decline of support ratio  Support ratio declines by 15%, implying an average rate of growth of support ratio of –0.45% per year  Demographic dividend is negative and acts to reduce standard of living by 0.45% per year 21 Third phase of China’s demographic dividend

22 Divergent growth: Effective producers and consumers

China in comparison: Annual growth rate of support ratio, entire period 1982– %

China in comparison: Annual growth rate of support ratio, first phase 1982– %

China in comparison: Annual growth rate of support ratio, second phase 2000– %

China in comparison: Annual growth rate of support ratio, third phase 2013– %

 Population aging could produce a second demographic dividend, due to increased saving for longer retirement (Mason and Lee 2004)  Such a dividend depends on the right institutional context that will turn savings due to aging into capital for increasing productivity  The second dividend is driven mainly by low mortality, not low fertility 27 End of demographic dividend?

Declining Support Ratio (Number of working persons per 60+, China and other BRIC economies)

Declining Support Ratio (Number of working persons per 65+, China and other large economies)

Changing Labor Supply 1.Total size(20-59) reaches a plateau, moderate increase in the next 10 years 2.Young labor (20-24) reached peak and will decline by nearly 20% in the next one and 1/3 in the next two decades

Smaller but more productive? 1.Available college age youths actually smaller due to educational expansion – shortage of unskilled young labor 2.A more productive labor force in the long run