The experience of China provides a useful policy template for countries with booming populations in south and southeast Asia and in sub-Saharan Africa. The Chinese boom showed that a growing working-age population combined with a declining fertility ratio can result in a large demographic dividend if certain conditions are met. As noted in this recent post, two important drivers of lower fertility are an increase in female literacy and a decline in child mortality. Read more
Large declines in fertility will depend on raising female literacy above 80%.
Every few years, the United Nations Population Division releases demographic projections for the entire world and for every country, region and continent. Although the UN’s database is the most used source on demographics, the data is not equally reliable for all countries.
Countries in the developed world conduct regular censuses and produce detailed numbers that are considered reliable. Less developed countries conduct censuses on an irregular basis or are completely unable to conduct them and have instead to rely on demographic sampling. In the poorest countries of the world, most of which are in sub-Saharan Africa, censuses are infrequent or nonexistent and even sampling can be irregular and unreliable. Read more
For decades, the decline in China’s birth rate was a big boost for the economy. What now?
This week, schadenfreude could have been a word invented for China experts if you judge by some of the commentary surrounding the country’s lifting of its one-child policy. Most got it right that the legacy of the one-child policy is now a problem for the Chinese economy because of a rapidly rising old-age dependency ratio (green line in the first chart below). This was tacitly acknowledged by the lifting of the policy. Read more
>>> This post was updated in May 2021. Visit this page for latest figures.
A fast growing economy usually requires a growing working-age population. It is informative in this regard to look at the size of the working-age population (wap) for different regions and countries of the world.
How many Africans will have access to electricity by 2050?
According to the World Bank’s latest figures, 64.6% of the population of sub-Saharan Africa lacked access to electricity in 2012, or a total of 572 million people. Across the world, 1.09 billion have no access to electricity. So, sub-Saharan Africa accounts for more than half the total.
Given the expected boom in the African population and the likely increase in access, the demand for electricity infrastructure is going to explode between now and 2050. On UN estimates (medium variant), the sub-Saharan population will jump from 886 million in 2012 to 2.1 billion in 2050. Assuming that each country’s current access rate remains the same, 381 million additional people will have access to electricity and 855 million additional people will not. Read more
The Financial Times describes China’s changing demographics in this new video. Two important changes are a reversal in the dependency ratio (previously discussed here on this site) and a slowdown or end to the ‘migrant miracle’.
The growth prospects of Brazil, Russia and China are dimming, while those of India are flaring.
If one is a lonely number, then ‘I’ could be a lonely letter, at least when it comes to the ‘I’ of the BRIC countries. Brazil, Russia and China all face mounting challenges in 2015 but the road ahead seems wide open for India. The main concern with this opening statement is that it seems to be the view of a large majority of observers.
Still, a majority is not the same as a consensus and certainly not the same as an extreme consensus. In investing, the consensus view is often right but the extreme consensus is absolutely and always wrong. For example, the consensus to buy tech stocks in 1997 was right but the extreme consensus to sell all non-tech and buy only tech in early 2000 was very wrong. When it comes to India, we are with the majority view, edging into consensus territory, but still far from extreme consensus. There remain enough doubters to ensure that this story still has plenty of time to play out.
Our approach to the topic is resolutely from the point of view of demographics. Demographics are not the be all and end all of an economy, but they are a very important vector, one of three very important vectors, the other two being innovation and institutional strength. Looking at the BRIC countries, the demographics of Russia and China are poor and those of Brazil are neutral. By contrast, the demographics of India, though challenging due to the large population size, could hold much promise if this huge newly created human energy can be harnessed and channelled in the right directions.
In general, the best demographic profile for an economy would be a rising population coupled with a declining dependency ratio (the ratio of dependents to workers). The increase in population means that demand for goods and services continues to grow. And the declining dependency ratio means that there is plenty of discretionary capital for consuming and for investing.
The US, Europe and China were in this sweet spot until six or seven years ago. Indeed, much of the world was in this sweet spot, a fact which largely explains the enormous creation of wealth and improvement in living conditions for billions of people in the past few decades. Things got more challenging in the middle of the last decade when dependency ratios in several countries bottomed out and started to rise.
We can’t blame the 2008 crisis on demographics alone. There were many abuses and excesses in the system which brought about the crisis. But it is worth noting that the crisis struck about the same time that a big reversal in demographics was taking place. A crisis would have come any way but instead of 2008, perhaps it would have come in say 2012 if the dependency ratio had bottomed four years later than it did.
Nor should anyone be surprised that Japan peaked in the late 1980s and has been struggling since then. Its dependency ratio bottomed in the early 1990s. Or that China saw a huge boom since 1980 after it introduced its one-child policy, thus engineering a very steep decline in its dependency ratio. Or that the US recovery has been slow, given that its population growth has slowed down and its dependency ratio has been rising.
As shown in the first chart above, India is the only BRIC country with a declining dependency ratio between now and 2030. Russia and China’s are already rising and Brazil’s will bottom and rise by the end of this decade. Russia seems to be in the worst shape since it has both a declining population and a rising dependency ratio.
Finally two quick words on the other big vectors of economic growth: innovation and institutional strength. Innovation in Brazil, China (ex-Taiwan) and Russia has been slow and cannot be considered a factor in future growth. There was plenty of excess capital to invest in new businesses when the dependency ratio was declining in all those countries but it went instead into real estate and other unproductive investments. Innovation has been slightly better in India and could take a big leap forward with more capital investments in the decades ahead. India also has an immeasurably greater competitive advantage compared to the other BRIC members: its population speaks English.
Institutional Strength can be the subject of endless debate, especially if we try to draw comparisons across countries. All emerging countries have to make significant progress on this account.
9 December 2014
See also Demography Charts – 1
Below are lists of largest country populations in 1950, 2015 and 2050, assuming the UN’s medium-variant projections. Key takeaways:
- Lower growth for world population in upcoming decades as total fertility ratios (TFR = children per woman) decline in Africa and Asia.
- Four European countries were in the top 10 in 1950. Only one (Russia) remains in 2015 and none in 2050.
- US population drops from 6.3% of world in 1950, to 4.4% in 2015, to 4.2% in 2050.
- Huge increase in Sub-Saharan Africa from 2015 to 2050, despite an expected decline in TFR.
Top 10 populations in 1950:
Top 10 populations in 2015:
Top 10 populations in 2050:
Finally, here is a chart of Europe and Sub-Saharan Africa as percent of total world population.
13 November 2014
Below are charts of country and regional dependency ratios.
First some definitions:
The total dependency ratio is the ratio of the population aged 0-14 and 65+ to the population aged 15-64. They are presented as number of dependents per 100 persons of working age (15-64).
The child dependency ratio is the ratio of the population aged 0-14 to the population aged 15-64. They are presented as number of dependents per 100 persons of working age (15-64).
The old-age dependency ratio is the ratio of the population aged 65 years or over to the population aged 15-64. They are presented as number of dependents per 100 persons of working age (15-64).
The charts below are derived from the United Nations’ World Population Prospects – The 2012 Revision
In theory, the economy does better when the dependency ratio is falling and less well when it is rising. But, as discussed in this previous post, two important mitigating factors are a country’s rate of innovation and its institutional strength.
United States, Europe, Japan
Figure 1 shows the total dependency ratios of Europe, Japan and the US from 1950 to 2050.
Key takeaways are:
- The ratio bottomed in Japan two decades before it bottomed in Europe and the US, which may explain Japan’s stagnation relative to the US and Europe in the 1990-2008 period.
- In the 1980s, 1990s and early 2000s, Europe and the US benefited from a declining ratio.
- All three ratios will rise from now into the foreseeable future. But Japan’s ratio will rise faster due to its older population.
Figure 2 shows the total dependency ratios of the BRIC countries: Brazil, Russia, India and China.
Key takeaways are:
- The ratios of Russia and China are both bottoming in the middle of the present decade and will rise for the foreseeable future.
- Brazil’s ratio will bottom later this decade and will subsequently rise.
- India’s ratio will continue to fall until about 2030 and will level off until 2050, which may help its economy grow faster.
Following are charts for a few individual countries and for Europe and Africa, showing all three dependency ratios as defined above. The blue line is the total ratio, the red is the child ratio and the green is the old-age ratio.
In the case of the US, Europe, Japan and China, it is clear that the rise in the total dependency ratio is mainly driven by a rising old-age ratio. Japan has the fastest rising old-age ratio. None of these countries is expected to see a big rise in its child ratio.
Note the steep 40+ point decline in China’s total dependency and child dependency ratios between 1970-2010. It is due to the country’s one-child policy and it provided a big boost to the Chinese economy in recent decades.
The following chart compares the total dependency ratios of the US and China. China’s ratio fell faster and will also climb faster.
India and Sub-Saharan Africa have a more promising demographic profile. A declining total ratio could markedly improve their economies, if other obstacles can be overcome. In addition, unlike other regions, Sub-Saharan Africa will not have a rising old-age ratio for the foreseeable future.