Demographic Dividend (DP IB Geography)

Revision Note

The Demographic Dividend

  • The demographic dividend is the 'economic growth potential' that can result from shifts in a population’s age structure

  • The Demographic Dividend describes how a country’s  dependency ratio falls quickly as it goes through a period of fast economic growth

  • Population structures are divided into three age-group categories, depending on the level of economic activity

    • Young dependents - from 0-14 years, they rely on their economically active parents to support them

    • Economically active - from 15-64 years, they are the working population who earn income, pay taxes and contribute to the support of the young and elderly

    • Elderly dependent - from 65 years onwards, they are no longer economically active and so rely on support from the state and younger family members

  • Therefore, the dividend occurs when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older)

  • According to the UN population research, Asia and Latin America have been the main beneficiaries of the demographic dividend. Countries in Sub-Saharan Africa are yet to benefit from it

Benefits of the Demographic Dividend

  • There are 4 areas of benefits, or dividends:

    • Labour supply - there will be an increase in the workforce and women are more likely to have a job

    • Savings - as the economy grows, wages rise and personal savings grow. There is more disposable income to purchase goods and services further contributing to the economy 

    • Human capital - a decrease in fertility rates results in healthier women, less economic domestic pressures and parents can invest more per child

    • Economic growth - GDP per capita will increase as the dependency ratio declines, fuelling investment in infrastructure and social services

  • The benefits assume that governments invest in suitable social, political and economic policies to support family planning, healthcare, education and job opportunities for women and girls to achieve parity

  • The demographic dividend is not guaranteed, as reduced fertility rates do not automatically provide benefits

  • The size of the benefit depends on:

    • Rate of fertility decline

    • Rate of population growth

    • Ability to employ the growing workforce

    • Political, economic and social policies in place

Case Study: South Korea's Demographic Dividend

  • South Korea's demographic dividend began in the 1960s, shortly after the Korean War

  • In 1962 South Korea's total fertility rates (TFR) was:

    • 1960 6.3 births per woman

    • 2.2 births in 1985

    • 1.2 births in 2005

    • 0.84 births in 2022

  • This is well below the replacement level and makes South Korea the country with the lowest fertility rate in the world

  • Life expectancy increased from:

    • 53 years in 1960

    • 68 years in 1985

    • 79 year in 2005

    • 83 years in 2022

  • With the reforms in public health, family planning and education linked with economic growth, South Korea is considered a textbook demographic dividend

Demographic Dividend of South Korea

4 Areas

Benefits to South Korea

Labour Supply

Reduction in TFR of 6.3 to 2.2 and increased life expectancy from 53 to 79 contributed to a large and young workforce

Improvements in education, women were able to remain in careers, thereby boosting the economy but also personal wealth

Savings

Young and older dependents consume more resources than they produce. By reducing the dependency ratio, the working age population were able to save and coupled with better health and longer life, South Koreans are able to reach middle-age with higher savings and better pension prospects

Human Capital

South Korea overhauled its education system to be more equal and this led to one of the most educated population in the world. 69.8% of South Koreans aged 25 to 34 years have completed some form of tertiary education. 34.2% of South Koreans aged 25 to 64 have a bachelor's degree. This has contributed to rapid economic development through a skilled workforce

Economic Growth

Changes to population size and age structure has contributed to economic growth and allowed South Korea to become an export orientated economy (exports provide over 50% of GDP). Rapid industrialisation has resulted in urban growth and improved infrastructure across the country, making South Korea one of the fastest growing economies with an average 4% GDP growth per year

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