Demographic Dividend (DP IB Geography)

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