Demographic Transition and economic growth

What is demographic transition? How can demographics of a country have an impact on its economic growth?

Let me first address the first part of this question,

Demographic transition refers to a change in the development stage of the country as it transgresses from a pre-industrialized era to an industrialized. The major change witnessed in the country will be a distinctive decrease in the birth and the death rates. This transition is illustrated through a demographic transition model. The demographic transition model theory is based on an illustration demonstrated by demographer Warren Thompson; his illustration is based on an observation of birth and death rates in various industrialized countries over the last 200 years. Although a relation between the industrialization and population rate has been established, it cannot be said with certainty whether industrialization leads to lower population or lower population leads to industrialization. Therefore, it has been witnessed that as societies develop, they go from high birth and death rates to low ones. The demographic transition model illustrates that birth and death rates fluctuate but reach equilibrium eventually. Basically, the transition includes 4 elaborate stages. They are:

Stage One (The Pre-Industrial Stage):
This is the most primitive stage.
There is a high birth and death rates.
Death rates are very high at this stage because of:
1. Lack of knowledge of diseases; it prevention and cure.
2. Occasional food shortages.
3. Birth rates are high at this stage because of:
4. Low literacy rate
5. Absence of government policies that support small families
6. No of knowledge about birth control or family planning
Moreover, in agricultural countries, farmers bear more children as more children means more working hand which substantiates more income.
Also, in developing countries (mostly Hindu and Arab) and many African communities, they have a traditional belief that large families generate status.
Countries in stage 1: Angola, Uganda

Stage Two (The Industrial Revolution):
In this stage there are a lot of births, however the death rate is low.
Ultimately this cause the population to grow as more infants are surviving.
Reasons because of high life expectancy are:
1. Improved food supplies
2. Better nutrition facilities
3. Improvements in medical and health expertise
4. Improved hygiene and sanitation
5. Safer water source.
Countries in Stage 2: Bhutan, Afghanistan, Nigeria

Stage Three (Post-Industrial Revolution)
This is the stage at which there is a low death rate as well as a declining birth rate.
Hence, there is a growth of population.
Reasons for low birth rates:
1. Family planning
2. Better education
3. Low infant mortality rate
Countries in Stage 3: Egypt, Costa Rica

Stage Four: Stabilization

This stage is characterized by stability.
There is a low birth rate and a low death rate.
The total population may be high but is balanced.
In this stage, people live an industrialized way of life where there is a desire for smaller families and various birth control measures also widely available.
Countries in Stage 4: Canada, Argentina, United States, New Zealand, United Kingdom and other European Countries.

How can demographics of a country have an impact on its economic growth?

Let me begin by defining what demography is. The word “demo” means people and “graphy” means measurement. Demography is the study of the human population on the various categories. It includes the study of size, structure, and distribution of the population. Likewise, the word “demographics” is closely related to the word “demography”. Demographics are nothing but measurable statistics of a given population. Gender, ethnicity, employment status, income level, age group, literacy level, mortality rate, ethnicity, language and disabilities are commonly used demographic subsets of any region.

These demographic subsets can have a significant effect on the economic growth of any nation. Moreover, we all know that human factor is the basic driver of the economy of any country. Let us examine some of these human demographic subsets and analyse their effect on the economy of a nation.

Literacy Rate:
As literacy rate of a country increases, the human expertise and skills required to develop a country also flourishes. Education fosters better job opportunities which improve the GNP and per capita income of the country. Educated people are capable of utilizing their capabilities to the fullest; thereby making use of all the resources available. In a country where there is low literacy rate most of the people work as labourers in the primary sector of the economy but education helps move to the secondary sector as people hold respectable positions in the society as doctors, engineers, pilots, businessmen etc. Apart from that, there is awareness in the society about everything. People are more aware about their health, the environment, and the society. They are more responsible and there will be less crime rates as well. Therefore, the human development index increase and so does the living standard. There is a positive effect on the economy of a county as a result of higher literacy rate.

Age Structure:
Age structure is a vital demographic subset that can have a significant impact on the growth of any economy. Basically, the age structure of a country can be divided economically in two categories: the working age group and the dependent age group. The working age group includes people between the age of 21-65 and the dependent population are the ones between 0-21 and 65 and above. If the working age group of people is high the economy of a country will be greatly benefitted. As more people will participate in the economy, the economy boosts. There will be more innovation and creation in the economy leading to more trade and more employment opportunities. These people are independent and the government does not need to invest much on them. On the other hand, if the dependent population is high then, the government has to provide child health care facilities, education, hygiene maintenance facilities, and food supplies. Likewise, for the old age population, the government will have to provide health care facility, develop various health technologies, pension facilities, establish old age homes, etc. therefore, if the dependent population is higher than the working population then the economy of a country suffers. There will be more expenditure in comparison to income.

Fertility:
Similarly, fertility is another factor that is closely related to the economic growth of a country. Demographic trends show that as the average births decreases income per person increases and so does the Gross National Income of the country. Many countries with high fertility have low income like Mozambique, Ghana, Kenya and Nigeria. On the other hand, countries like South Korea and Singapore have high income rates and low fertility rates that allows for a high workforce in relation to the population size. One of the reasons why many countries have made economic progress is because women started having fewer children. Smaller family sets the stage for countries to better manage their population growth and reduce constraints on economic growth. As economic opportunities expand and smaller families become the norm, countries economy flourishes. Moreover, family planning enables couples to achieve their desired family size. Keeping the family pressure low, women are also able to join the labour force, and families can invest more in each child. Therefore, they are at a better position take advantage of economic opportunities available and invest in the development of the country.

All in all, it is rightfully said that human capital is the most important driving force of any economy. It is one of the major factors of production of any economy. The various demographic subsets like age structure, gender, income level, literacy rate, employment status all effect the economic growth of any country.