Population and Development

1. 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

2. 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

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

4. 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)

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

6. I. Growth Demographic Transition in the Developing World

7. I. Growth The Role of Changing Age Structure Actual and Projected Age Dependency for Developing Countries, 1950-2050

8. I. Growth Age Dependency Ratio by Region

9. I. Growth Ratio of workers to dependents

10. I. Growth Changing Age Structure Produces A Demographic Bonus • 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.

11. I. Growth Age Dependency Ratio by Region

12. I. Growth The Effect On Savings • 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

13. I. Growth

14. I. Growth But the Policy Environment Matters 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.

15. I. Growth Institutions Matter Too 1. Rule of Law 2. Property Rights 3. Political Stability Policies and institutionsmoderate negative effects of rapid population growth, and reinforce positive effects of the demographic bonus.

16. I. Growth Reinforcing effects:Endogenous factors can be important 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

17. II. Poverty Poverty and Fertility Change On the one hand... • 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, economistshave traditionally hesitated to endorse policies and programs to reduce fertility.

18. II. Poverty On the other hand... 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

19. II. Poverty 1. Slowing economic growth and poverty reduction • 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.

20. II. Poverty 2. Skewing distribution of consumption against the poor • The distribution effect • The conversion effect

21. II. Poverty Moreover, high fertility may not even be optimal, even for poor families. Why would poor parents make non-optimal “decisions”? 1. Poor parents have severely constrained choices. The apparent alternativeof 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.

22. II. Poverty And evidence increasingly suggests: • 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.)

23. II. Poverty The poor may have more children…but not only because they are poor The Fertility Gap and Returns to Education in Latin America Peru Paraguay Honduras Bolivia Explained by Rates of Return Explained by Education Levels Brazil Unexplained Panama 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

24. 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 children’s poverty

25. III. Policy Implications 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