Population Composition and Its Effect on Economic Growth

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Population Composition and Its Effect on Economic Growth

Deboshmita Brahma

1 Department of Economics, University of Calcutta, India Abstract * Corresponding Author Background: The relationship between population and economic growth has always ([email protected]) been a subject of debate. There has never been any clear consensus amongst economists about the nature and extent of influence that population has on the economic growth of a country. Objective: This paper aims to explore the influence exerted by the age structure of the population on the economic growth of a country. Method: The paper uses secondary data to find the relation between Gross Domestic Product (GDP) per capita levels of countries and their respective Age Dependency Received: 27 February, 2021 Ratio. Revised: 29 April, 2021 Result: There is a significant negative relationship between them, which implies that, if Accepted: 6 May, 2021 a country has a rise in a high proportion of the dependent population, per capita income Published: 10 June, 2021 will tend to be lower. Conclusion: The paper then makes a special study of the prospect of demographic dividend in India. The country is in the third phase of demographic transition, implying that the proportion of the working-age population is greater than the dependent population. This provides an ideal condition for the Government to reap the benefits of demographic dividend and achieve higher levels of economic growth. Keywords: Demographic Economics, Demographic Dividend, Age Distribution, How to cite this paper: Economic Growth, Public Policy Brahma. D. (2021). Population composition and its effect on Paper Type: Research paper economic growth. Quest Journal of Management and Social Sciences, JEL Classification: H00, O4 3(1), 86-100.

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DOI 10.3126/qjmss.v3i1.37597 86 QJMSS (2021) Brahma: Population composition and its effect on economic growth Introduction The relationship between population and economic growth has always been a subject of debate. There has never been any clear consensus amongst economists about the nature and extent of influence that population has on the economic growth of a country. This topic received extensive research by economists using different theoretical concepts for decades. However, there has not been any clear empirical evidence that shows a clear relationship between the two variables. The relation between population and economy’s performance was first advocated by Thomas Malthus in his book ‘An Essay on The Principle of Population’. He stated that the population grows in geometric progression while 'subsistence' or food multiply arithmetic progression. Therefore, there will always be a scarcity that the human population will face. ‘The power of population is so superior to the power in the earth to produce subsistence for man, that premature death must in some shape or other visit the human race’ (Malthus et al., 1970). Till the 1960s, the opinion about the population as a deterrent to economic growth was popular among economists. Due to this, many countries at that time adopted population control measures to bring the population under control. Fertility rates during that time fell rapidly in many countries. There were also some works like that of Kuznets where Kuznets (1960) stressed how the rise in population leads to the labor force. He explained that the limited resources and capital available in the country will lead to a fall in the productivity of each worker. Coale and Hoover (1958) studied the economic growth prospect of a high population density country like India. The study found that without nationwide population control, there would not be enough food to feed its entire population and India would have to export manufactured goods to import food. Though in the 1980s, India did face economic problems due to a rise in oil prices and spells of droughts, India was able to overcome the problems and it is now the second-largest food-producing country, after China. Therefore, it was felt there are other factors about demography that are influencing the economic growth of a country. A new theory started emerging that it is not the population as a whole, but the structure of the population that determines economic growth. It was seen that a high population country like China was also enjoying a high economic growth rate. This led the researchers to look more closely at the demographic trends and other country-specific aspects for determining the economic growth prospect of the country. At present, most of the researchers agree that the population composition and structure determine economic growth in a country. An important theory based on this principle is the demographic dividend. The theory of demographic dividend states that a country will progress if the share of the working-age population is high and the share of its dependent population is low. This is a popular theory and has been accepted by economists as a real phenomenon. It has been said by economists that developed countries usually have achieved economic development by utilizing the demographic dividend due to the rising working-age population in these countries in the past. Recently, China has achieved considerable economic development due to the rising working- age population. Economists have claimed such rapid development due to China’s strict efforts to reduce the fertility rate that thereby helped it to achieve demographic dividend at an earlier period. India has achieved the period where its working-age population is at its highest level. Therefore, it requires an urgent need for policies to utilize this population productively. This study examines how the age structure of a population affects economic growth, first for the countries in the world and then for India. This paper contains eight sections. Section I introduces an area of examination and its relevance to the present scenario. Section II explains the concepts of demographic transition and demographic dividend. Section III discusses relevant concepts used in the study. Section IV reviews the relevant literature to the study. Section V describes the methodology applied to this study. Section VI discusses the findings of this paper. Section VII explores the situation in India related to the demographic dividend. Finally, Section VIII draws the conclusion based on the discussion in previous sections and suggests measures to accelerate economic development in India.

DOI 10.3126/qjmss.v3i1.37597 87 QJMSS (2021) Demographic transition refers to the entire process of conversion of a country from a situation of high birth rate and high death rate to a situation of low birth rate and low death rate. The birth rate refers to the number of births per thousand persons in a country. The death rate is the number of deaths per thousand persons in the country. If the birth rate is higher than the death rate, then there is a natural increase in the population. The situation of high birth rate and high death rate implies a situation of underdevelopment where thereBrahma: are Populationno population composition and controlits effect on economicmeasures growth and lack of Demographicadequate health Transition care and nutritionand Demographic for the people. Dividend Therefore, with a gradual development of health and education facilities, the country can achieve the situation of low birth rate and death rate over Demographic transition refers to the entire process of conversion of a country from a situation of high birthtime. rate The and original high death demographic rate to a situation transition of low birthmodel rate as and suggested low death byrate. Warren The birth Thompson rate refers in 1929 has tofour the stages:number of births per thousand persons in a country. The death rate is the number of deaths per thousand persons in the country. If the birth rate is higher than the death rate, then there is a natural increaseStage 1: in High the population. birth rate The and situation high death of high rate birth: This rate r efersand high to thedeath initial rate impliessituation a situation of an economy of before underdevelopmentit starts its process where of there development. are no population Illiteracy control and measures lack andof awareness lack of adequate lead health to a carehigh and birth rate. The nutritiondeath rate for theis people.high because Therefore, the with g overnmenta gradual development is unable of tohealth provide and education adequate facilities, nutrition the and health countryfacilitie cans for achieve its entire the situation population of low duebirth torate a andlack death of resources. rate over time. The original demographic transition model as suggested by Warren Thompson in 1929 has four stages: StageStage 1: 2: High High birth birth rate andrate high and death falling rate: deathThis refers rate to: This the initial situation situation starts of an increase economy ofbefore population it in the startscountry. its process Due toof thedevelopment. introduction Illiteracy of health and lack and of medicalawareness care, lead tothe a lifehigh expectancybirth rate. The of death people rises and ratethis is leads high becauseto a fall theing government death rate. is unableThe b toirth provide rate is,adequate however, nutrition still and high. health facilities for its entire population due to a lack of resources. Stage 3: Falling birth rate and a low stable death rate: In this stage, both birth and death rates fall. Stage 2: High birth rate and falling death rate: This situation starts increase of population in the country. DueThe to b irththe introduction rate falls due of health to rising and medical awareness care, theabout life expectancyfamily planning of people and rises the and increase this leads of to education for athe falling population. death rate. However,The birth rate the is, populationhowever, still stillhigh. rises as the birth rate is still higher than the death Stagerate. 3: Falling birth rate and a low stable death rate: In this stage, both birth and death rates fall. TheStage birth 4: rate Birth falls rate due toequal risings deathawareness rate about: In thisfamily stage, planning the andpopulation the increase growth of education rate is for st theationary, in the population. However, the population still rises as the birth rate is still higher than the death rate. sense, there is no increase in population. This is the situation of developed countries. Stage 4: Birth rate equals death rate: In this stage, the population growth rate is stationary, in the sense, there is no increase in population. This is the situation of developed countries. FigureFigure 1: Stages 1: S oftages Demographic of Demographic Transition Transition

Source: Barcelona Field Research Centre Report (2020) Source: Barcelona Field Research Centre Report (2020) There has been an additional stage added to the original model and that is called the fifth stage of demographic transition. In this stage, there is a falling birth rate and stable death rate. This situation leadsThere to hasa population been an decrease additional as the stage birth rateadded starts to falling the original more than model the death and rate. that The is calledgovernment the fifth stage of hasdemographic to take measures transition. to improve In thisits population stage, there size. is a falling birth rate and stable death rate. This situation The possibility of demographic dividend occurs during the third stage of the demographic transition model. When the population rises in the country, the country receives certain benefits that eventually improve its economic condition. This view is different from3 the traditional theories which held that population growth only has a negative influence over the country. However, in reality, it was discovered

DOI 10.3126/qjmss.v3i1.37597 88 QJMSS (2021) Brahma: Population composition and its effect on economic growth that as the population rose and the working-age population rose eventually, the country was able to derive some benefits from it. These benefits are called demographic dividends. The following are how the rising growth of the working-age population increases economic growth: Economic benefit: The country has a greater proportion of the population of the working-age group. Therefore, is a majority of the population productively contributes to the nation, accelerating its growth rate. The government has to pay fewer transfers of payments like pensions because of a small share of elderly people, thereby decreasing its burden. It can use its surplus resources in infrastructural and technological development. The people have adequate income to save more and it increases investment in the country. Also, as the birth rate falls, the government has more resources to invest in human capital formation in the future generation leading to a second demographic dividend in the future. Technological benefit: The working-age group gets engaged in innovations and inventions. Therefore, an increase in this age group leads to better innovative technologies in production. This leads to the improvement of productivity and economic growth. Social benefit: With the development in the economy and falling illiteracy, the shackles of prejudices and primitive mindsets are replaced with a progressive outlook amongst the people. The people will be more tolerant which will give rise to lesser discrimination and inequality in the country. Political benefit: Development also leads to institutional changes. It reduces corruption and empowers the citizens. The government has also enough resources at its disposal to spend on the welfare of the people. However, the presence of demographic transition does not imply that the country gets the demographic dividend. The conditions in the country should be conducive for it to be able to reap the benefit. Such conditions are discussed later in the paper in greater detail. Review of Literature With the emergence of the theory of population dividend, researchers started investigating more on the importance of population structure on economic development. In this section, I review the relevant literature on population structure and economic development. Bloom D., Canning, D., and Sevilla, J. (2003) found from their study that population composition, especially the age structure of the population, is important for a country’s economic growth. Keeping this in mind, they advocated the reduction of the fertility rate in the country for achieving growth faster. However, the study also highlighted the importance of the right kind of education and health facilities for the country to reap the benefits of economic growth. Another study by Bawazir, Aslam, and Osman (2019) empirically examines the effect of demographic change on economic growth in Middle-East countries. The study finds that factors like population growth, working-age population, and old dependency ratio positively influence growth. However, the youth dependency ratio negatively influences economic growth. The study also finds that male workers contribute more positively to economic growth than female workers and so more efforts by the government are required to engage women actively in the labor market. The effect of population growth on the economy is complex. According to Peterson (2017), high population growth in low-income countries slows down the development process. On the other hand, high population growth in developed countries leads to social and economic problem lower population growth and limited migration contributes to increased economic inequality, further reducing economic growth. Headey and Hodge (2009) analyzed studies in the literature linking population and economic growth. It states that literature has proved that the adult population has a positive effect on the growth of the economy. However, the impact of population growth on the economy is enhanced when regression controls for investment due to the resource-dilution effect. Bloom, Canning, and Sevilla (2003) highlight age structure as an important determinant of economic growth. With population growth, age structure changes, which in turn, influences economic growth

DOI 10.3126/qjmss.v3i1.37597 89 QJMSS (2021) Brahma: Population composition and its effect on economic growth because changes in economic behavior have a significant influence on economic growth. Therefore, increased opportunities for the adult population helps to achieve a demographic dividend. Openness to trade and flexible labor markets help to achieve this. Baker, De Long, and Krugman (2005) argued that real economic growth needs to rely on a rapidly expanding economy to finance social security. Therefore, population growth has a detrimental effect on economic growth in the long run, unless there is corresponding productivity growth. Mamingi and Perch (2013) provide an empirical investigation of Barbados yields the result that population growth positively impacts economic growth whilst economic growth negatively impacts population growth. International migration, however, has a negative influence on population growth which hampers economic growth in Barbados. Another study by Lee and Mason (2010) showed the reason for advocating low fertility in a country. They claimed that a low fertility rate leads to greater human capital accumulation that leads to high per capita consumption because, if the number of children in a family is less, parents have greater resources to spend on each child. The study found that countries with lower fertility are spending more on human capital accumulation. High human capital accumulation also gives rise to the possibility of a second population dividend in the country. Bloom, D., Canning, D., and Fink, G. (2010) advocated an increase in the life expectancy of the population. Increasing life expectancy leads to people working longer in their lives thereby prolonging the demographic dividend. The study found that developing countries are facing a rapid decline in their fertility rate compared to the developed countries. This affects the entering of young people into the job market because the old age group continues to work. This accelerates the positive effect of population structure on economic growth. In a recent study, Barsukov (2019) asserted the importance of socioeconomic policies in achieving demographic dividends. This is because a country experiencing demographic transition does not need to automatically get the demographic dividend. The study compared the various aspects of the demography of countries in the world. The study found that some developing countries experience a higher level of reduction of fertility rate than the developed countries when they had a demographic transition. Therefore, the depth of demographic dividend is more substantially experienced in developing countries than the developed ones. Several studies contributed to the discourse of the demographic transition and its effect in India. Aiyar and Mody (2013) argued that, in India, substantial growth was witnessed from the 1980s due to the country’s age structure. Using inter-state demography, the study found age structure as an independent factor that positively influences economic growth. Desai (2010) had compared the demographic situation of China and India. The author argued that China’s stringent one-child policy of population hastened its demographic dividend and India’s fertility rate fell gradually. Therefore, India expects to experience a lesser old-age dependency ratio sooner than China. However, India needs to include the female working-age group productively otherwise it will lose considerable economic growth and will not be able to realize a demographic dividend. Research Method This paper is a descriptive analysis of the effect of the composition of the population on the economic growth of a country. It uses secondary data released by the World Bank from the year 1980 to 2019. Data has been taken for the following parameters: GDP per capita as a proxy of income level and also the growth of GDP per capita as representative of economic growth in a country. A total of 151 countries has been considered in our study. Of these 20 countries belong to high-income; 118 countries to middle-income countries; and 13 belong to low-income countries. Age dependency ratio data has also been taken from the World Bank database. This paper deals with the relation between economic growth and the age dependency ratio in the world. For the analysis of the relationship between per capita GDP and age dependency ratio, the following simple linear regression model has been used:

DOI 10.3126/qjmss.v3i1.37597 90 QJMSS (2021) Brahma: Population composition and its effect on economic growth

th Y i = ai * Xi +ei, where Yi = GDP per capita of i country, th ai = parameter capturing the effect of Age Dependency Ratio on GDP per capita of i country,

Xi= Age Dependency Ratio of ith country, th and, ei= error term for i country. The regression results have been obtained using STATA 14 software. The regression analysis has been done with the help of STATA 14 software. Data Analysis and Results We find a negative relationship between GDP per capita and age dependency ratio. This implies that countries with high age dependency ratio have lower GDP per capita and vice-versa. This result is logical because a higher age dependency ratio implies a greater proportion of the population depending on the productive age group. The working-age group, therefore, has to bear a greater burden as they have more mouths to feed and each person in the population gets a lesser share of the pie. The standard of living is, therefore, lowered and people are worse off. The negative relation between GDP per capita and age dependency ratio is significant and the overall R-square is 28 percent. Therefore, 28 percent of the GDP per capita is explained by the dependency ratio. The within-group variation is 1.89 percent and between-group variation is 47.71 percent. Table 1: Chart showing regression result of relation between per capita GDP and Age Table 1: Chart showing regression result of relation between per capita GDP and Age DependencyDependency Ratio Ratio

Random-effects GLS regression Number of obs = 6,040 Group variable: country Number of groups = 151

R-sq: Obs per group: within = 0.0189 min = 40 between = 0.4771 avg = 40.0 overall = 0.2800 max = 40

Wald chi2(1) = 161.48 corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000

gdppercapita Coef. Std. Err. z P>|z| [95% Conf. Interval]

agedependencyratio -118.7454 9.344462 -12.71 0.000 -137.0603 -100.4306 _cons 17549.92 988.5745 17.75 0.000 15612.35 19487.49

sigma_u 9088.4872 sigma_e 7890.8603 rho .57018515 (fraction of variance due to u_i)

Source: WorldSource: Bank World data Bank (2020) data (2020) In someIn countries, some countries, the dependency the dependency ratio ratio is isvery very highhigh duedue to to the the higher higher fertility fertility rate and rate birth and rate. birth rate. So, the proportionSo, the proportion of the of population the population below below 15 15 yearsyears isis much much higher higher in these in these countries. countries. Households Households in these incountries these countries are typically are typically characterized characterized by by large large familiesfamilies and and only only one oneor two or workers. two workers. These These householdshouseholds suffer fromsuffer poverty from poverty and malnutrition and malnutrition as the as low the incomelow income is not is enoughnot enough to feed to fsufficientlyeed sufficiently all the members of the family. Education is also neglected due to the dire economic all the memberscondition ofin thethe family. family. This Education is the reason is also for the neglected negative relationdue to shipthe betweendire economic income percondition capita in the family. Thisand ageis the dependency reason for ratio the in negative the countries. relationship between income per capita and age dependency ratio in the countries. To get a closer look at the differences between the developed and underdeveloped countries, we To get adivided closer the look countries at the into differences the following between three groups: the developed lower income and group, underdeveloped middle-income countries,group, we divided theand countrieshigher-income into thegroup. following The classification three groups: has lowerbeen done income keeping group, in middle-incomemind the criteria group, of and higher-incomeclassification group. of The countries classification based on theirhas perbeen capita done income keeping by inthe mindWorld the Bank: criteria high -ofincome classification of countriescountries based $ 4461on their7.48, permiddle capita-income income countries by the $5573.24 World Bank:and low high-income-income countries countries- $810.09 $44617.48,. When we plot the GDP per capita and age dependency ratio of high-income countries, we find no middle-incomesignificant countries relationship $5573.24 between and the two.low-income For developed countriescountries, $810.09. the proportion When of we the plot dependent the GDP per DOI 10.3126/qjmss.v3i1.37597population does not influence the economic growth91 in these nations. When we look atQJMSS the (2021) relationship between GDP per capita and age dependency ratio for middle and low-income countries, we find a negative relationship. For these countries, the age dependency ratio significantly influenced economic growth. This is an interesting finding and requires considerable insight.

Brahma: Population composition and its effect on economic growth capita and age dependency ratio of high-income countries, we find no significant relationship between the two. For developed countries, the proportion of the dependent population does not influence the economic growth in these nations. When we look at the relationship between GDP per capita and age dependency ratioTable for 2: Chart middle showing and low-income regression countries, result of werelation find between a negative per capita relationship. GDP For these countries, theand Tableage Age dependency 2 :Dependency Chart showing ratio Ratio significantly regression for high influencedincome result of countries relation economic between growth. per This capita is an GDPinteresting finding and requires considerable insight. and Age Dependency Ratio for high income countries Table 2: Chart showing regression result of relation between per capita GDP and Age Dependency RatioR aforndo highm-eff incomeects GL Scountries regression Number of obs = 800 Group variable: country Number of groups = 20 Random-effects GLS regression Number of obs = 800 RG-rsoqu:p v a r i a b l e : c o u n t r y O b sN upmebre rg roufp :groups = 20 within = 0.0000 min = 40 R - s q :b e t w e e n = 0 . 0 0 9 7 O b s p e r g r oauvpg: = 40.0 owvietrhailnl == 0 .00.00080 0 m a x m=i n = 4 0 40 between = 0.0097 avg = 40.0 o v e r a l l = 0 . 0 0 0 8 W a l d c h i 2 (1 ) m=a x = 0 . 0 0 40 corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.9754 Wald chi2(1) = 0.00 c o r r ( u _ i , X ) = 0 ( a s s u m e d ) P r o b > c h i 2 = 0 . 9754 gdp Coef. Std. Err. z P>|z| [95% Conf. Interval]

a g e d e p r a tgidop 3 . 4 1C0o1e8f . 1 1S0t.d5.1 9E2 r r . 0 . 0 3 z 0 . 9P7>5| z | -2 1 3 .[29053%5 C o n f2.2 0I.n0t2e3r9val] _cons 34820.29 5916.272 5.89 0.000 23224.61 46415.98

agedepratio 3.41018 110.5192 0.03 0.975 -213.2035 220.0239 sigma_u 9551.1395 _cons 34820.29 5916.272 5.89 0.000 23224.61 46415.98 sigma_e 18907.819

rho .20329439 (fraction of variance due to u_i) sigma_u 9551.1395

sigma_e 18907.819 Source: Worldrho Bank .203 data2943 (2020)9 (f raction of variance due to u_i)

Source:Table World 3: BankChart data showing (2020) regression result of relation between per capita GDP Source: World Bank data (2020) Table and3: Chart Age Dependencyshowing regression Ratio for result middle of relation income between countries per capita GDP and Age Dependency Table 3: Chart showing regression result of relation between per capita GDP Ratio for middle income countries and Age Dependency Ratio for middle income countries Random-effects GLS regression Number of obs = 4,720 Group variable: country Number of groups = 118

RR-asnqd:o m - e f f e c t s G L S r e g r e s s i o n O b sN upmebre rg roufp :obs = 4,720 G r o u pw ivtahriina b =l e0:. 0c8o9u9n t r y N u m b e r o f gmrionu p=s = 4 0 118 between = 0.0719 avg = 40.0 R - s q :o v e r a l l = 0 . 0 0 7 2 O b s p e r g r omuapx: = 40 within = 0.0899 min = 40 b e t w e e n = 0 . 0 7 1 9 W a l d c h i 2 (1 ) a=v g = 4 3 0 . 6 940.0 c o r r ( uo_vie,r aXl)l == 00. 0(0a7s2s u m e d ) P r o b > c h i2 m=a x = 0 . 0 0 0 0 40

W a l d c h i 2 ( 1 ) = 4 3 0.69 c o r r ( u _ i ,g dXp) = 0 C(oaesfs.u m e dS)t d . E r r. z P > |Pzr|o b > [c9h5i%2 C o n f . I=n t e r v a0l.]0000

a g e d e p r a t i o - 1 1 4 . 6 2 5 9 5 . 5 2 3 3 0 1 - 2 0 . 7 5 0 . 0 0 0 - 1 2 5 . 4 5 1 4 - 1 0 3 . 8 0 0 4 _ c ogndsp 1 4 0 0 0C.o8e3f . 7 7S6t.d3.4 8E3 r r . 1 8 . 0 3 z 0 . 0P0>0| z | 1 2 4 7[99.52%2 C o n f1.5 5I2n2t.e4r5val]

a g e dseipgrmaat_iuo 7-217184..5642659 5.523301 -20.75 0.000 -125.4514 -103.8004 s i g_mcao_nes 4 3 3184.090108.383 776.3483 18.03 0.000 12479.22 15522.45 r h o . 7 3 7 8 0 9 0 6 ( f r a c t i on o f v a r i a n c e d u e t o u _ i ) s i g m a _ u 7 2 7 8 . 5 4 6 Source: World si gBankma_e data 4(2020)338.9183 . rho .73780906 (fraction of variance due to u_i) DOI 10.3126/qjmss.v3i1.37597 92 QJMSS (2021)

Brahma: Population composition and its effect on economic growth Table 4: Chart showing regression result of relation between per capita GDP Table 4: Chart showing regression result of relation between per capita GDP and Age Dependency Ratioand for Age low Dependencyincome countries Ratio for low income countries

Random-effects GLS regression Number of obs = 520 Group variable: country Number of groups = 13

R-sq: Obs per group: within = 0.0777 min = 40 between = 0.1051 avg = 40.0 overall = 0.0856 max = 40 Wald chi2(1) = 43.96 corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.0000

gdp Coef. Std. Err. z P>|z| [95% Conf. Interval]

agedepratio -5.330102 .8039293 -6.63 0.000 -6.905774 -3.754429 _cons 887.6372 82.65364 10.74 0.000 725.639 1049.635

sigma_u 131.60639 sigma_e 189.89797 rho .32446164 (fraction of variance due to u_i)

Source:. Source: World WorldBank data Bank (2020) data (2020) The possible explanation for this curious situation is that when a country is developing, the effect of a Thelarger possible dependent explanation population forheavily this affects curious the situationgrowth prospect is that of when the nation. a country In other is words,developing a poor , the effect ofcountry a larger is moredependent adversely population affected by heavily the increasing affects population the growth than aprospect rich country. of the This nation. can be betterIn other words, a understoodpoor country if we is take more the exampleadversely of aaffected family. Let by us the consider increasing a poor familypopulation that can than barely a richmake country. its This canends be meet. better If anunderstood additional member if we take is added the to exampl the family,e of then a family. the expenditure Let us onconsider each existing a poor member family that can barelyhas to make be cut itsdown ends to providemeet. If for an the additional new member. member Each member is added will to get the less family, food and then the the children expenditure on may be forced to quit schools because it cannot be afforded anymore. By contrast, if an additional eachmember existing is added member to a rich has family to bewith cut enough down savings, to provide it will hardlyfor the affect new the member. lifestyle ofEach the existing member will get lessmembers food ainnd the the family children to provide may for be one forced more person. to quit Therefore, schools thebecause adverse it effect cannot of a benew afforded member anymore. Byis contrast,more in a poorif an household additional compared member to ais rich added household to a rich that hasfamily plenty with of money enough at itssavings, disposal it to will hardly affectprovide the for lifestyle the new of member. the existing Similarly, members for a poor in thenation, family the burdento provide of its fodependentr one more population person. is Therefore, themore adverse felt as effectit has to of cut a newdown member on its development is more in expenditure, a poor household health care, compared and education to a torich provide household that hasfor plenty its increasingly of money dependent at its disposalpopulation. to Therefore, provide wefor find the anew negative member. relationship Similarly, between for income a poor nation, per capita level and the proportion of the dependent population. On the other hand, the developed thecountries' burden income of its level dependent does not getpopu reducedlation by is the more proportion felt as of theirit has dependent to cut populationdown on andits thedevelopment expenditure,former remains health unaffected care by, andthe latter.education The regression to provide results forshow its an increasinginsignificantly relation dependent between populat ion. Therefore,income per wecapita find and a dependencynegative relation ratio. ship between income per capita level and the proportion of theWe dependent now consider population. the relationship On the between other the hand, growth the of developed per capita incomecountries' and theincome change level of age does not get reduceddependency by the ratio. proportion This relationship of their is dependentimportant to populationbe discussed andbecause the itformer will show remains the nature unaffected and by the latter.extent Theof influence regression that the results age dependency show an ratio insignificant has on the economic relation growth betwe of aen country income. per capita and dependencyTable 5 shows ratio. a negative relationship between the growth of the proportion of the dependent population and the economic growth of countries. However, the relation is insignificant that implies a change in Wethe now dependency consider ratio the does relationship not influence between the growth the of growth the economy of per. capita income and the change of age dependencyWhen we consider ratio. theThis growth relationship of the proportion is important of old-age to in be the discussed population, because then we findit will no relationshow the nature andbetween extent it ofand influen economicce thatgrowth. the In age other dependency words, it does ratio not has affect on economicthe economic growth. growth However, of aif country. we consider the young age group, we see a positive relationship between its growth and per capita income growth. This implies an economy at early stages with a high young population will encounter high-income growth. It can also be because the population below 15 years affects the economic growth positively. This can be explained intuitively. As the number of members in a household rise, the working members tries to earn more to provide for them. It engages more time in productive activity.

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Brahma: Population composition and its effect on economic growth Therefore, the substitution effect becomes more powerful than the income effect as the opportunity cost of working reduces and that of leisure rises. So people are induced to work more and be more productive which, thereby, has a positive impact on the nation’s income level. Table 5: Chart showing regression result of relation between growth of per Table 5:capita Chart GDP showing and growth regression of age result dependency of relation ratio between growth of per capita GDP and growth of age dependency ratio

Random-effects GLS regression Number of obs = 5,889 Group variable: country Number of groups = 151

R-sq: Obs per group: within = 0.0005 min = 39 between = 0.0527 avg = 39.0 overall = 0.0003 max = 39

Wald chi2(1) = 1.63 corr(u_i, X) = 0 (assumed) Prob > chi2 = 0.2021

growth_gdp Coef. Std. Err. z P>|z| [95% Conf. Interval]

growth_agedepratio -.0344891 .0270352 -1.28 0.202 -.0874771 .0184989 _cons .0454149 .001834 24.76 0.000 .0418204 .0490094

sigma_u 0 sigma_e .14080273 rho 0 (fraction of variance due to u_i)

Source:Source: World World Bank dataBank (2020) data (2020) IndiaThe above and regression Demographic shows a negative Dividend relationship between the growth of the proportion of the dependent population and the economic growth of countries. However, the relation is insignificant India is a middle-income country with a majority of the population very poor and cannot afford the that implies a change in the dependency ratio does not influence the growth of the economy. necessities of life. However, initiatives by the Government of India have helped to improve their living conditions.When we consider the growth of the proportion of old-age in the population, then we find no Inrelation Table 6, betweena regression it and analysis economic explores growth. the extent In other to which words, the ageit does dependency not affect ratio economic has affected growth. the incomeHowever,Table per capita if 6 :we Chart ofconsider India. showing Data the youngregressionconsidered age group,isresult from of w1960 erelation see to a2019. positive between relationship per capita betweenGDP its growth and per capita income growth. This implies an economy at early stages with a high young Table 6:and Chart Age showing Dependency regression Ratio result for India of relation between per capita GDP and Age Dependency population will encounter high-income growth. It can also be because the population below 15 Ratio for India years affects the economic growth positively. This can be explained intuitively. As the number of members Sou rinc ea household S Srise, the working df members MS tries to N uearnmbe rmore of otob sprovide = for them. 55 It engages more time in productive activity. Therefore, the Fsubstitution(1, 53) effect = becomes 5. 9more3 p owerful Mo dthanel the 1income.32308 9effect66 as the opportunity1 1.3230 8cost966 of workingProb > Freduces and = that 0of.0 leisure182 rises. Re Sosi dpeopleual are 1 1induced.81732 8to8 work more 53 and .2 be22 9more6846 productive7 R-squ awhichred , thereby = , has 0 a. 1positive007 impact on the nation’s income level. Adj R-squared = 0.0837 Total 13.1404184 54 .243341082 Root MSE = .4722 India and Demographic Dividend India is a middle -income country with a majority of the population very poor and cannot afford ltheog_ gnecessitiesdpper~a of li f e. However,Coef. Sinitiativestd. Err. by the Governmentt P>|t| of I ndia [95 have% Co nhelpedf. In ttoer improveval] their living conditions. agedepratio -.0161983 .0066496 -2.44 0.018 -.0295358 -.0028609 In Table _ c6,o nas regression 2. 7analysis6505 explore.45968s1 the2 extent 6. to02 which 0. 0the00 age dependency 1.843046 ratio 3 has.68 affected7053 the income per capita of India. Data considered is from 1960 to 201 9. Source: WorldWorld Bank Bank data data (2020) (2020)

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The study finds a negative relationship between the age dependency ratio and per capita GDP. This proves that in the case of India, a higher percentage of the dependent population has a negative 10 influence on economic growth. For India to accelerate its development level, it requires a high working-age population and adequate opportunities for the population to productively contribute to the nation’s development. India has tried to curb the population explosion using awareness about family programs and the availability of contraceptive methods. It has not used coercive measures like China due to which the effects of the awareness are being realized years later. Presently, India is said to be in the third stage of demographic transition because the birth rate is declining and the death rate is stable.

Figure 2: Demographic Transition Figure 1: Demographic Transition in India 45 40 35 30 25 20 Birth rate (per 15 1,000 people) 10 Death rate (per

Birth Rate and Death Rate 5 1,000 people) 0

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year

Source: World Bank data (2020)

Table 6: Chart showing regression result of relation between per capita GDP and Age Dependency Ratio for India

Source SS df MS Number of obs = 55 F(1, 53) = 5.93 Model 1.32308966 1 1.32308966 Prob > F = 0.0182 Residual 11.8173288 53 .222968467 R-squared = 0.1007 Adj R-squared = 0.0837 Total 13.1404184 54 .243341082 Root MSE = .4722

log_gdpper~a Coef. Std. Err. t P>|t| [95% Conf. Interval]

agedepratio -.0161983 .0066496 -2.44 0.018 -.0295358 -.0028609 _cons 2.76505 .4596812 6.02 0.000 1.843046 3.687053

Source: World Bank data (2020)

Brahma:The Population study findscomposition a negative and its effect relation on economicship growth between the age dependency ratio and per capita GDP. TheThis study proves finds that a negativein the case relationship of India, abetween higher percentage the age dependency of the dependent ratio and population per capita has GDP. a negative This provesinfluence that in theon caseeconomic of India, growth. a higher For percentage India to ofaccelerate the dependent its development population has level, a negative it requires influence a high on workingeconomic-age growth. population For India and toadequate accelerate opportunities its development for the level, population it requires to productively a high working-age contribute populationto the nation’s and adequate development. opportunities for the population to productively contribute to the nation’s development.India has tried to curb the population explosion using awareness about family programs and the Indiaavailability has tried ofto contraceptivecurb the population methods. explosion It has not using used awareness coercive aboutmeasures family like programs China due and to thewhich availabilitythe effects of ofcontraceptive the awareness methods. are being It has reali notz edused years coercive later. measuresPresently, like India China is said due to to be which in the the third effectsstage of of the demographic awareness are transition being realized because years the later. birth Presently, rate is declining India is saidand tothe be death in the rate third is stagestable. of demographic transition because the birth rate is declining and the death rate is stable. Figure 2: Demographic Transition Figure 1: Demographic Transition in India Figure 2: Demographic Transition 45 40 35 30 25 20 Birth rate (per 15 1,000 people) 10 Death rate (per

Birth Rate and Death Rate 5 1,000 people) 0

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Year Since the crude birth rate is independent of population structure and composition. Therefore, it Source: World Bank data (2020) may not capture the actual decline of infertility. So, it is important to consider the trend of the total Source: World Bank data (2020) fertilitySince the rate crude also. birth rate is independent of population structure and composition. Therefore, it may not capture the actual decline of infertility. So, it is important to consider the trend of the total fertility rate also. Figure 3: Total Fertility Rate in India from 1960 to 2016 Figure 3: Total Fertility Rate in India from 1960 to11 2016

7 6 5 4 3 2 1 Total Fertility Rate Total Fertility Rate 0

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Year Source: World Bank data (2020) The life expectancy rate has also increased in India. It is rising as the economy is developing and the government Source: spends World more Bank resources data on (2020) improvement in education, health care, and living standards of the people. The life expectancy rate indicates the productivity of people. If a person is healthy, then he/ Theshe lwillife expectancyalso have larger rate productivity has also increasedcompared to in a India.person Itsuffering is rising from as malnutrition.the economy So isrising developing life and theexpectancy government rate implies spends that more the productivity resources of workerson improvement is increasing inin Indiaeducation, and, thereby, health accelerating care, and living standardseconomic ofgrowth. the people. The life expectancy rate indicates the productivity of people. If a person isDOI healthy, 10.3126/qjmss.v3i1.37597 then he/she will also have larger 95productivity compared to a personQJMSS suffering (2021) from malnutrition. So rising life expectancy rate implies that the productivity of workers is increasing in India and, thereby, accelerating economic growth. Figure 4: Life Expectancy Rate at Birth in 1960 to 2016

80 70 60 50 40 30 20 Life expectancy at 10 birth (in years) years) 0

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Life Expectancy at Birth (in Year

Source: World Bank data (2020)

A high life expectancy rate leads to higher economic growth if the share of the dependent population falls and the working-age population increases. This can be determined by studying the

Since the crude birth rate is independent of population structure and composition. Therefore, it may not capture the actual decline of infertility. So, it is important to consider the trend of the total fertility rate also. Figure 3: Total Fertility Rate in India from 1960 to 2016

7 6 5 4 3 2 1 Total Fertility Rate Total Fertility Rate 0

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Year

Source: World Bank data (2020) The life expectancy rate has also increased in India. It is rising as the economy is developing and the government spends more resources on improvement in education, health care, and living standards of the people. The life expectancy rate indicates the productivity of people. If a person is healthy, then he/she will also have larger productivity compared to a person suffering from malnutrition. So rising life expectancy rate implies that the productivity of workers is increasing in India and, thereby, accelerating economic growth. Figure 4: Life Expectancy Rate atBrahma: Birth Population in 1960 composition to 2016 and its effect on economic growth Figure 4: Life Expectancy Rate at Birth in 1960 to 2016

80 70 60 50 40 30 20 Life expectancy at 10 birth (in years) years) 0

1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Life Expectancy at Birth (in Year

Source: World Bank data (2020) A high life expectancy rate leads to higher economic growth if the share of the dependent population falls and Source: the working-age World Bank population data increases.(2020) This can be determined by studying the demographic pyramid of India. A demographic pyramid can be expanding, stationary, or contracting in shape. A Expandinghigh life pyramid:expectancy If the shaperate leadof thes pyramidto higher is such economic that the base growth of the ifpyramid the share is broad of and the the dependent populationpyramid tapers falls to and the thetop, workingi.e. it is the-age shape population of a mountain, increases. then it is Thisexpanding can bein nature. determined It implies by that studying the the proportion of the young age group is highest in the country because the fertility rate is very high. Also, the death rate is high due to which proportion of old an age person is least. This is applicable for all the countries before they start experiencing the development process. Stationary pyramid: This occurs after the expanding pyramid.12 In this case, the proportion of the young age group and the lower portion of the working-age group are of equal breadth. Therefore, it takes the shape of a square with a semi-circle at the top. It implies that the birth control measures of the government become effective due to which the base of the pyramid is not broadening anymore. Contracting pyramid: This occurs after the stationary stage. The pyramid’s base becomes narrower while its middle portion becomes broader. In other words, the fertility rate falls and the dependent population is low. The share of the working-age population increases due to which the middle part of the pyramid becomes broader. By looking at the demographic pyramid of India, we find that in 1960, the shape of the demographic pyramid was expanding. This shape is found in all the demographic pyramids till the year 1990. In the demographic pyramid of years 2000 and 2010, the shape was stationary. This is because the population control policies of the government began to be effective around this time. In the demographic pyramid of the year 2020, the shape is contracting in nature because the base is getting narrower than the middle portion that comprises of working age group population. This occurs because the fertility rate is declining.

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Brahma: Population composition and its effect on economic growth Figure 5: DemographicFigure Pyramid 5: Demographic of India from Pyramid 1960 of to India 2020 from 1960 to 2020 1960 1970 1980

1990 2000 2010

2020

Source:Source: Population Population Pyramid Pyramid India India (2020) (2020) The phenomenon of the rising proportion of the working-age population in the country puts India in a perfect position to reap the benefits of demographic dividend. However, such benefits can be reaped only if appropriate measures are adopted by the government. It is important to discuss the importance The phenomenon of the rising proportion of the working-age population in the country puts India of some measures that will help the country to achieve a demographic dividend. Such measures are as in a perfect position to reap the benefits of demographic dividend. However, such benefits can be follows: reaped only if appropriate measures are adopted by the government. It is important to discuss the importanceMeasures of ofpopulation some measures control: that From will the help demographic the country pyramid, to achieve it is aevident demographic that population dividend. growth Such measuresin India is areslowing as follows: down. The efforts of the government become effective and more families prefer smaller families in India. The fertility rate is also falling which is also a good sign. The government should continue with its present measures to make birth control measures affordable and accessible to all its citizens. However, it is important to understand that if the fertility rate falls too low, then prospects of population growth and the demographic14 dividend get destroyed. Therefore, the government should maintain a balance without jeopardizing the hope of economic growth in the future. Reduction of female infanticide and early marriage: Malpractices like female infanticide should be severely punished not only out of moral obligation but also from the economic development point of

DOI 10.3126/qjmss.v3i1.37597 97 QJMSS (2021) Brahma: Population composition and its effect on economic growth view. Such practices create a skewed distribution of population that will adversely affect the future share of the working-age population and economic growth. Child marriage should also be stopped in remote areas so that population growth is reduced. Education: Free and compulsory education for all, irrespective of gender, religion, and caste, is a prerequisite for economic development. This helps people raise awareness about population education. Girls will have the option of earning for themselves rather than getting married and depending on their husbands for survival. Improvement of life expectancy rate: In recent years there has been improvement in the life expectancy of people in India. The life expectancy rate in India in 2018 was 69.4 years. However, it is still low compared to China (76.7 years), United States (78.5 years), Bhutan (71.5 years), Indonesia (71.5 years), and Bangladesh (72.3 years). These data have been taken from the World Bank database. Higher life expectancy helps the nations to increase the productivity of people, enabling them to work longer. This prolongs the span of demographic dividends. Therefore, the government should focus on improving the health and nutritional facilities of the young and working-age group of the population. Training programs: This measure helps to improve the productivity of the workers. Training programs reduce unemployment and bring more people into the workforce. While the share of the high working-age population is important, if unemployment is high, then it will not lead to a demographic dividend. Therefore, training programs are important to employ individuals productively in the labor force. Training programs can also improve the productivity of the existing workforce by making them acquainted with new technologies that will increase work efficiency and reduce time and effort. Increase of Female Labour Force Participation Rate: This is an important measure in the Indian context because recent trend shows a fall in female Labour Force Participation Rate. Economists are still trying to find reasons for a declining trend, especially when the country is developing fast. Reasons such as discrimination in the labor market, low wages, and lack of mobility of female workers have been claimed to be the reasons. The government should take stringent action to curb this trend, because if almost half of the country’s population is not engaged in the labor force, then theFigure country 6can: Female never achieve Labour the fullForce extent Participation of demographic Rate dividend. in India from 1990 to 2020 Figure 6: Female Labour Force Participation Rate in India from 1990 to 2020 35

30 25 20

Rate 15 Female Labor Force 10 Participation Rate 5

Female Labour Force Participation Participation Force Labour Female 0

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Year

Source: World Bank data (2020) TheseDOI 10.3126/qjmss.v3i1.37597are some measures that can help to improve98 India’s chances of achievingQJMSS (2021) demographic dividend. The government needs to take this opportunity that will last around 40-50 years as it will accelerate the economic growth of the country and help it to become a powerful nation in the world. However, the above policies are general suggestions and it will be more effective if the government takes region-specific actions that will be attuned to the local culture and social norms. The effectiveness of a policy also depends on the stakeholders and economic agents and, therefore, it is important to adopt a bottom-up approach for policy formulation rather than a top-down approach. Conclusion This paper has explained the importance of population composition in determining a country’s economic growth. Explaining the concepts like demographic transition and demographic dividend, this paper argues that, not just the population, but the age structure of the population determines the economic growth of a country. The demographic dividend, which is an important window of opportunity for the countries to accelerate their growth, depends on the age composition of the population, especially the working-age group. This paper also relates the age dependency ratio with the income level of countries. Cross-sectional data analysis has been conducted for this analysis. The study finds a negative relation between per capita GDP and age dependency ratio. This implies that countries with high per capita GDP have a low age dependency ratio and vice-versa. This result proofs the significance of the productive contribution of the working-age population on the income level of a country. The relation is more pronounced for underdeveloped countries as they depend much more on the productive capacity of the individuals. The study also finds that there is a positive relationship between the growth of per capita income and the growth of the young-age dependency ratio. This is because an economy at early stages with a high young population will encounter high-income growth.

Brahma: Population composition and its effect on economic growth These are some measures that can help to improve India’s chances of achieving demographic dividend. The government needs to take this opportunity that will last around 40-50 years as it will accelerate the economic growth of the country and help it to become a powerful nation in the world. However, the above policies are general suggestions and it will be more effective if the government takes region- specific actions that will be attuned to the local culture and social norms. The effectiveness of a policy also depends on the stakeholders and economic agents and, therefore, it is important to adopt a bottom- up approach for policy formulation rather than a top-down approach. Conclusion This paper has explained the importance of population composition in determining a country’s economic growth. Explaining the concepts like demographic transition and demographic dividend, this paper argues that, not just the population, but the age structure of the population determines the economic growth of a country. The demographic dividend, which is an important window of opportunity for the countries to accelerate their growth, depends on the age composition of the population, especially the working-age group. This paper also relates the age dependency ratio with the income level of countries. Cross-sectional data analysis has been conducted for this analysis. The study finds a negative relation between per capita GDP and age dependency ratio. This implies that countries with high per capita GDP have a low age dependency ratio and vice-versa. This result proofs the significance of the productive contribution of the working-age population on the income level of a country. In case of India as well, there is a negative relation between income per capita and age dependency ratio. This paper also studied the prospect of India in achieving demographic dividends. India is currently going through the third stage of demographic transition. There has been a fall in fertility rates and an increase in life expectancy levels, all of which point to the fact that it is in an ideal position to reap the benefits of demographic dividend. However, it needs to adopt certain measures which will be effective in improving the quantity as well as the quality of its workforce. A mere increase of working-age group will not automatically ensure that there will be a demographic dividend. It will be ensured only if the majority of the working-age population is productively engaged in the economy. To achieve this situation, the government needs to tackle the discrimination practices that are present in the Indian labor market. It excludes the marginalized sections of the population, such as the females, Scheduled Tribes, Scheduled Castes, Other Backward Classes, and the differently-abled persons. The government should aim at a more diverse workforce and ensure an inclusive work environment to attract more members of the working-age group into the workforce. Such policies will ensure improvement in the prospect of a country achieving demographic dividend. It is important to consider that there can be other factors that influence the economic growth of a country as well, such as investment and capital accumulation, infrastructural development, and institutional changes. Such factors may have a greater influence on the growth of a country compared to population composition. However, the scope of the present paper is to highlight the extent to which population structure affects economic growth, without diminishing the importance of other factors. The specific need and situations prevailing in the economy will determine the factors that will be used by policymakers to achieve economic growth and development in the country. Conflict of Interest Author declares no conflict of interest.

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