Demographic Change and Economic Growth

in the BRICS: Dividend, Drag or Disaster?

Presentation based on the

2015/16 Global Monitoring Report (GMR)

www.worldbank.org/gmr

Philip Schellekens

Lead Economist, Prospects Group, World Bank Group

with contributions from: Syud Amer Ahmed, Pinyi Chen, Marcio Cruz, and Bryce Quillin

www.worldbank.org/GMR

Global Monitoring Report 2015/2016

• First World Bank Group report on global demography since 1984

• What has changed since then?

o Demographic trends

o Thinking on demography

o Globalization

Plan of talk

PART 1: The Global Setting

• What are the patterns of demographic change?

• How does demographic change affect growth and development?

• What role for policies at the national and international levels?

PART 2: The BRICS

• How do demographic trends in the BRICS vary?

• Will demographic change be conducive for growth or spell trouble?

• What policies are critical to bolster outcomes?

Plan of talk

PART 1: The Global Setting

• What are the patterns of demographic change?

• How does demographic change affect growth and development?

• What role for policies at the national and international levels?

Patterns: Global trends are at a turning point

A period of unprecedented global

population growth has ended

0.0

0.5

1.0

1.5

2.0

2.5

1950 60 70 80 90 2000 10 20 30 40 2050

Population growth rate (percent) Global population shares by age cohort (percent)Ages 15-64 on left axis, Ages 0-14 and 65+ on right axis

The working-age share of the

global population peaked and the

world is now aging

0

5

10

15

20

25

30

35

40

52

54

56

58

60

62

64

66

68

1950 60 70 80 90 2000 10 20 30 40 50

Ages 15-64 Ages 0-14 Ages 65+

Patterns: Stark disparities across countries

Cumulative change in population, 2015-50

15%

30%

-2%

-10%

20%

Patterns: The rise of Sub-Saharan Africa

Share of global population growth (%) Annualized growth rate, ages 15–64 (%)

More than half of global population growth through 2050 will be in Sub-Saharan Africa

0

10

20

30

40

50

60

HIC EAP ECA LAC MNA SAR SSA

1950-2015 2015-50

Working-age population growth is slowing globally but will remain high in Sub-Saharan Africa

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

HIC EAP ECA LAC MNA SAR SSA

1980-2015 2015-50

HIC High-income countries EAP East Asia and the Pacific

ECA Europe and Central Asia LAC Latin America and the Caribbean

MNA Middle-East and North Africa SAR South Asia

SSA Sub-Saharan Africa

Impact: Two types of demographic dividend may boost per capita

economic growth

-4

-2

0

2

4

6

8

-10 0 10 20 30Ave

rag

e a

nn

ua

l ch

an

ge

in

re

al G

DP

p

er

ca

pita

, 1

96

0-2

014

Change in the share of the working-age population, 1960-2014

Note: A rising working-age population share is positively correlated with GDP per capita growth.

An increase of 1 percentage point in the working-age population share is estimated to boost GDP per

capita by 1.5 percentage points, on average.

Impact: A new typology of demography and development that helps

us disentangle the impact

Growth of Working-

age Population

Share, 2015-30

Total Fertility Rate, 1985 Total Fertility Rate, 2015

<2.1 >=2.1 >4 <=4

<= 0 Post-dividend Late-dividend

>0 Pre-dividend Early-dividend

Note: The working-age population is defined as the share of the population aged between 15

and 64 years. Total fertility rate is the average number of births per woman in her lifetime.

Criteria for the demographic typology:

Impact: Demographic transition from pre- to post-dividend stage

Total Fertility Rate

Four groups of countries can be identified based on the opportunities for growth and

development that demographic change presents

IndiaSouth Africa

Brazil

China

Russia

0

1

2

3

4

5

6

7

8

9

45 55 65 75 85Life expectancy (years)

Pre-dividend Early-dividendLate-dividend Post-dividend

Impact: The world through the lens of the typology

10 GMR 2015/2016

Impact: Simulations into 2030 according to demographic type

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

Pre-dividend Early-dividend Late-dividend Post-dividend World

A. Average change in the share of working age

population, 2015-30 (percentage points)B. Average GDP per capita (annualized)

growth, 2015–30 (percentage points)

0.80.5

-0.2 -0.6 -0.3

2.2 3.2 4.2

2.0 2.3

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Pre-dividend Early-dividend Late-dividend Post-dividend World

Other sources of growth

Impact of Demographic Change

Impact: Simulations into 2030 for aggregate economic growth

Average aggregate GDP (annualized) growth, 2015–30 (percentage points)

0.9 0.3-0.6 -0.5 -0.4

6.0

4.74.6

1.93.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Pre-dividend Early-dividend Late-dividend Post-dividend World

Impact of Demographic Change Other sources of growth

Policies: Pre- and early-dividend countries

Sparking demographic transition

• Improve maternal and child

health

• Expand education without

letting girls fall behind

• Empower women

• Improve access to

comprehensive family planning

services

Accelerating job creation

• Invest in human capital

• Enhance labor market mobility

• Reduce barriers to female labor

force participation

• Strengthen conditions

conducive to savings & job

creation

Pre-dividend countries

lagging in human

development outcomes

Early-dividend countries

further along in demographic

transition

Example: India, South AfricaExample: Niger, Sudan

Policies: Late- and post-dividend countries

Sustaining productivity growth

• Continued mobilization of

savings for productive

investment

• Ensure public policies

encourage labor force

participation of both sexes

• Design cost-effective,

sustainable welfare systems

Adapting to aging

• Reform welfare systems for

fiscal sustainability while

ensuring social protection

• Raise labor force participation

rates & productivity of everyone,

at all ages

• Pursue policies that encourage

fertility rebound, including

measures to reconcile childcare

& work

Late-dividend countries with

shrinking proportions of 15-

64 population & aging

accelerating

Post-dividend countries with

shrinking proportions of 15-

64 population & aging well

underway

Example: Brazil, China, Russia Example: Japan, Germany

Policies: Development disparities

87 percent of the world’s poor lived in centers of global poverty in 2015

while the engines of global growth accounted for 78 percent of global

economic growth since 2000

Policies: Demographic divergences

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Pre-dividend Early-dividend Late-dividend Post-dividend

1980-2015

2015-50

Annual growth of population 15-64 (percent)

0

5

10

15

20

25

30

1950 60 70 80 90 2000 10 20 30 40 2050

Pre-dividend Early-dividend

Late-dividend Post-dividend

Global working-age population growth will be

dominated by the centers of global poverty

Aging already advanced or accelerated in

the engines of global growth

Share of population, ages 65+ (%)

Policies: Leveraging greater globalization

• Scope for leveraging demographic differences between countries for own growth

as well as positive development spillovers

• Trade

• Capital flows

• Migration

• Channels are complementary

• Generally, migration more constrained than trade and capital flows

Plan of talk

PART 2: The BRICS

• How do demographic trends in the BRICS vary?

• Will demographic change be conducive for growth or spell trouble?

• What policies are critical to bolster outcomes?

Patterns: Diminishing population growth for all BRICS

0

50

100

150

200

250

1950 60 70 80 90 2000 10 20 30 40 50

Brazil Russia

80

90

100

110

120

130

140

150

160

1950 60 70 80 90 2000 10 20 30 40 50

China

India

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

1950 60 70 80 90 2000 10 20 30 40 50

0

200

400

600

800

1 000

1 200

1 400

1 600

1950 60 70 80 90 2000 10 20 30 40 500

10

20

30

40

50

60

70

1950 60 70 80 90 2000 10 20 30 40 50

South Africa

Patterns: Working-age population shares peak much earlier in

Brazil, China and Russia

50

55

60

65

70

75

1950 60 70 80 90 2000 10 20 30 40 50

Brazil

Russia

China

50

55

60

65

70

75

1950 60 70 80 90 2000 10 20 30 40 50

India

South Africa

Late-dividend BRICS: share of working-age

population (percent)

Early-dividend BRICS: share of working-age

population (percent)

Patterns: Russia and South Africa would be further along in the

transition if not for their earlier mortality and HIV/AIDS crises

Life expectancy at birth for males, years Life expectancy at birth for females, years

30

40

50

60

70

80

90

1950-55 1960-65 1970-75 1980-85 1990-95 2000-05 2010-15

Brazil Russia

India China

South Africa

30

40

50

60

70

80

90

1950-55 1960-65 1970-75 1980-85 1990-95 2000-05 2010-15

Brazil Russia

India China

South Africa

Patterns: Working-age population growth rates expected to decline

considerably in China and Russia

Average change in the share of working age population (percentage points)

0.32

0.27

0.11

0.32

0.40

0.30

-0.11

0.06

-0.41

0.15

-0.35

0.13

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

0.4

0.5

BRICS BRA RUS IND CHN ZAF

2000-2014 2015-2030

Patterns: Elderly shares rising fast, with 20-28% of the populations

of Brazil, Russia, and China over 65 years by 2050

Share of population, aged 65+, percent

A. Share of population aged 65+ in Late-

Dividend BRICS

B. Share of population aged 65+ in Early-

Dividend BRICS

Share of population, aged 65+, percent

0

5

10

15

20

25

30

1950 60 70 80 90 2000 10 20 30 40 50

BrazilRussiaChina

0

5

10

15

20

25

30

1950 60 70 80 90 2000 10 20 30 40 50

India

South Africa

Impact: Economic performance and outlook of the BRICS

Average annual real GDP growth rate, percent

Source: World Economic Outlook April 2016

2.8

6.1 6.1

9.4

3.53.73.3

7.8

11.4

3.1

0.3 0.4

6.77.4

1.81.4 1.3

7.6

6.0

2.1

0

2

4

6

8

10

12

Brazil Russia India China South Africa

2000-04 2005-09 2010-15 2016-21

Impact: Cyclical and structural drivers of growth

Source: World Bank (2015).

Note: Unweighted average

0

2

4

6

8

10

122000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Potential growth Actual growth

Actual and potential real GDP growth: BRICS, 2000-14

Impact: Simulations illustrate considerable direct impact through the

first and second demographic dividend

Average aggregate GDP (annualized)

growth, 2015–30 (percentage points)

Note: separate simulations conducted for South Africa (see later slide)

0.2-0.5 0.3

-0.8

1.9

0.7

6.6

5.6

-2

0

2

4

6

8

Brazil Russia India China

Other sources of growth

Impact of Demographic Change

2.1

0.2

7.9

4.8

Average per capita GDP (annualized) growth,

2015–30 (percentage points)

0.2 -0.50.3 -0.8

1.31.2

5.65.4

-2

0

2

4

6

8

Brazil Russia India China

Other sources of growth

Impact of Demographic Change

1.5 0.7

5.94.6

Impact: Downside risks to first demographic dividend

if job creation insufficient to absorb new workers

Unemployment rate, percent

Source: World Development Indicators 2016, World Economic Outlook 2016

0

5

10

15

20

25

30

1990 95 2000 05 10 15 20

Brazil

IndiaChina

Russia

South Africa

Impact: Downside risks to second demographic dividend

if demographic change does not lead to greater savings

Gross domestic savings, share of GDP, percent

Source: World Development Indicators 2016

0

10

20

30

40

50

BRA CHN IND RUS ZAF

1960 1970 1980 1990 2010 2015

Policies: Key demographic challenges for India

• Absorbing the potentially high number of entrants into the working-

age population

• Critical dimension of this is skills formation and education

• Not just quantity, but also quality

• Eliminating persistently high gender gaps throughout education

Policies: Closing gender gaps, especially in India

Source: World Development Indicators 2016

Labor force participation rate by gender, 2014,

percent

0

10

20

30

40

50

60

70

80

90

Brazil Russia India China SouthAfrica

Female Male

0

10

20

30

40

50

60

Brazil Russia India China SouthAfrica

Share of labor force that is female, 2014, percent

Policies: Despite tremendous improvements, India lags in education

Source: Barro and Lee 2013

Years of schooling

0

2

4

6

8

10

12

14

Brazil Russia India China South Africa

1950 2010

Policies: Key demographic challenges for South Africa

• High and increasing share of population in working-age having

challenges in finding employment

• Unemployment is extremely high, more than 25%

• Figure is higher when considering underemployment

• Labor force participation low (60% in 2001, 57% in 2014)

• Unemployment rates particularly high for youth (50% of youth

aged 15-24)

• Skills gap

• Labor productivity growth subdued

Policies: Impact of early-dividend policies in South Africa (1)

Business as usual:

Unemployment rate stays at 25%

Accelerated job creation:

Job creation 3 times faster

Unemployment rate falls to 5.8%

Source: South Africa Economic Update August 2015, Volume 7

Note: Poverty estimates based on $1.25 poverty line and 2005 PPP weights.

Policies: Impact of early-dividend policies in South Africa (2)

If new job creation is coupled with improvements in educational attainment and

productivity improvements, the larger labor force can have a greater impact

Source: South Africa Economic Update August 2015, Volume 7

Note: Poverty estimates based on $1.25 poverty line and 2005 PPP weights.

Unemployment rates falls to 5.8%,

% population with 9+ years schooling

rises to 72% from 61%

Output per worker growth is 30%

percent higher and equal to that of

BRICS average

Policies: Key demographic challenges for Brazil

• Shrinking share of working age population will require an urgent

increase on productivity per worker.

• With lower number of children in the population, it is necessary to

improve human capital as a key driver of growth. Focus should be on

quality of education.

• Increase savings to promote investments in infra-structure will require

additional efforts, particularly from public sector, facing the fact that

savings did not grow over the window of the 1st demographic

dividend.

• Adapt the pension system to face a fast ageing population, while

improving the quality of health and education systems.

Policies: Improve education attainment and achievement in Brazil to

raise productivity growth

Despite improvements on education,

Brazil is lagging behind in educational

quality, particular for the B40

Output per worker in Brazil has

stagnated for more than a decade

0 20 40 60 80 100

Indonesia

Brazil

Mexico

Thailand

Turkey

United States

Russian Federation

Spain

France

Italy

Germany

Finland

Japan

Korea

Math T20 Math B40

Share of students demonstrating basic

competency in PISA math test, 2012 (%)

PPP converted GDP Laspeyres per person counted in total employment

at 2005 constant prices

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

BRA CHN

Policies: Key demographic challenges for China

• Shrinking labor force will lead to pressures on wages, which

may make China less competitive in the global market for labor

intensive goods.

• Growth led by high savings and investment will need to be

rebalance towards more consumer and service-led economy.

• Despite the recent abolishment of the one child policy, fertility

rate may not increase significantly in the short term.

• Rising share of elderly creates need for expansion of social

protection system

Policies: Providing old-age security in China

The working age population in China is

shrinking in both absolute and relative

terms

By 2050 there might be more than 2

elderly for every child in China

Changes in the share of working

age population (percentage points)Ratio of elderly (> 64)

per child (0-14)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

-1

-0.5

0

0.5

1

1.5

195

0

195

5

196

0

196

5

197

0

197

5

198

0

198

5

199

0

199

5

200

0

200

5

201

0

201

5

202

0

202

5

203

0

203

5

204

0

204

5

205

0

change WAP share (left axis)

Population aged 15-64 (right axis)

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

0

0.5

1

1.5

2

2.5

195

0

195

4

195

8

196

2

196

6

197

0

197

4

197

8

198

2

198

6

199

0

199

4

199

8

200

2

200

6

201

0

201

4

201

8

202

2

202

6

203

0

203

4

203

8

204

2

204

6

205

0

Ratio Elderly/Child (left axis)

Population aged 65 or over (right axis)

Working age

population

Number of

children (0-14)

Policies: Key demographic challenges for Russia

• On the cusp of becoming a post-dividend country

• Fiscal challenges from higher spending on pensions and

healthcare

• Without policy changes protracted deficits could boost

2015 debt-to-GDP ratio of 20% to over 100% by 2050

• Pension share of GDP higher than OECD average

• Policy reform necessary, as well as behavioral change by

firms and workers

• If workers are healthier for longer, they can postpone

retirement

Policies: Enhancing labor force participation for older workers in

Russia

Note: Data from ILO

Source: World Bank 2015. Searching for a New Silver Age in Russia: The Drivers and Impacts of Population Aging

• The BRICS face very different demographic starting points, presenting

unique opportunities and challenges

• Demographics matter greatly for growth in the BRICS

o First and second demographic dividends

o National and cross-border effects

o Direct and indirect effects

• But it’s not all about demographics

o Cyclical and structural

o Demographic and other

• Moreover, the impact of demographic change is not deterministic,

underpinning a role for policy to bolster outcomes

• Depending on starting points, transmission, and policies, demographic

trends in the BRICS can produce a wide range of outcomes

Concluding remarks: Dividend, drag or disaster?

Global Monitoring Report 2015/2016

The report is available on:

www.worldbank.org/gmr

Thank you.