Summary of Demographic Change and Economic Growth in the BRICS: Dividend, Drag, or Disaster?

The World Bank and the IMF jointly produce the annual Global Monitoring Report to analyze policies and institutions that are needed to achieve progress in terms of global development goals. The 2015/2016 Report focused on “Development Goals in an Era of Demographic Change” and aimed to document the intensity and diversity of demographic developments around the world, as well as analyze their implications for development and growth. On Wednesday, April 20, 2016 Philip Schellekens, Senior Economist at the World Bank, delivered a lecture on the 2015/2016 Report titled “Demographic Change and Economic Growth in the BRICS: Dividend, Drag, or Disaster?” Following the lecture was a panel discussion, which included S. Amer Ahmed, Economist, World Bank Development Prospects Group; Marcio Cruz, Economist, World Bank Development Prospects Group; and Marcos Troyjo, Co-Director, BRICLab, Center on Global Economic Governance at Columbia University SIPA. The discussion was moderated by Jan Svejnar, Director of the Center on Global Economic Governance, which organized the event in collaboration with the Program in Economic Policy Management.

Philip Schellekens began by discussing the global setting of demographics, looking at the patterns of change and how this affects growth and development. He noted that global trends are at a turning point since the period of unprecedented population growth has ended and the world is now aging. He did emphasize, however, that there is diversity around the world in terms of population growth that needs to be considered. For example, he discussed how the patterns showing a rise of Sub-Saharan Africa, with it likely accounting for more than half of the global population growth between now and 2050. This indicates that the working-age population is in decline nearly everywhere in the world aside from Sub-Saharan Africa. Schellekens then turned to discussing what the impact is of changes in demographics. He discussed the two different types of demographic dividends that may result in a boost to per capita income growth. First, when there is a temporary boost in the share of the working-age population there are fewer dependents, which tends to benefit the population as a whole through the labor supply. Second, as there are more working-age individuals there is an increase in savings, which ends in investments that boost growth.

In order to understand these impacts better, Schellekens discussed the creation of a new typology of demography and development that splits the world into four different types of countries: 1) Pre-dividend, or those with high fertility and low life expectancy; 2) Early-dividend, or those with declining fertility while maintaining growth of the working-age population; 3) Late-dividend, or those with declining fertility as life expectancy is increasing; and 4) Post-dividend, or those with aging populations. He highlighted the strong regional dimension to this, as almost all pre-dividend countries are located in Sub-Saharan Africa, while most post-dividend countries are high-income economies. Using this information, the report authors ran simulations in 2030 and found that early-dividend countries will have a half a percent GDP per capita growth boost every year as a result of their demographic change.

Schellekens then discussed some of the policy implications for each of the four types of countries. Pre-dividend countries are those lagging in human development outcomes, such as Niger or Sudan, and require policies that will spark demographic transition. Early-dividend countries are those that are a bit further along in the demographic transition than pre-dividend countries, such as India or South Africa, and therefore require policies that focus on accelerating job creation. On the other side of demographic change, late-dividend countries are faced with a shrinking working-age population, such as Brazil or Russia, and should focus their policies on sustaining productivity growth. Finally, post-dividend countries are experiencing significant aging of their population, such as Japan or Germany, and therefore need to have policies that allow for adapting to aging. Schellekens noted that due to these differences across countries, there is a need to leverage greater globalization through trade, capital flows, and migration in order to realize the potential dividends.

Schellekens then moved onto the second part of his lecture focusing specifically on the BRICS countries. He began by noting that population growth for all BRICS is diminishing, and that it is actually already negative in Russia. He discussed trends across BRICS countries, splitting them into two of the four typologies – Brazil, Russia, and China being late-dividend; India and South Africa being early-dividend. He noted that the cases of Russia and South Africa are unique as they each experienced different crises that affected their demographics.

He then went through each of the BRICS countries to highlight their individual demographic challenges. India will need to absorb a potentially high number of entrants into the working-age population while eliminating persistently high gender gaps in education that impact skills formation for the workforce. South Africa also faces the issue of very high unemployment, especially for youth, likely due to a skills gap. Brazil, on the other hand, needs to increase productivity per worker as the share of working-age population is shrinking. This means it must work on improving human capital and adapting the pension system to absorb those who are aging. China is also facing a shrinking labor force and will need to adapt social protections accordingly. Unlike Brazil, however, it must address what pressures on wages will mean for China in the global market as it becomes less competitive for labor intensive goods. Finally, Russia is facing the fiscal challenges of higher spending on pensions and healthcare as it is on the cusp of becoming a post-dividend country.

Schellekens concluded by noting that the BRICS face very different demographic starting points, which present unique opportunities and challenges. Regardless, however, he stated that demographics will matter greatly for growth in the BRICS.

Samantha Weinberg MPA '16