Demographic Change and Economic Growth in the BRICS: Dividend, Drag - - PowerPoint PPT Presentation

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?
• Demographic trends
• Thinking on demography
• 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

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

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

2 4 6 8

• 10

10 20 30 Average annual change in real GDP per capita, 1960-2014 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

India South Africa Brazil China Russia 1 2 3 4 5 6 7 8 9 45 55 65 75 85 Life expectancy (years) Pre-dividend Early-dividend Late-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-dividendLate-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) 0.8 0.5

• 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 4.7 4.6 1.9 3.0

• 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 Africa Example: 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) 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

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 195060 70 80 90200010 20 30 40 50

China India

200 400 600 800 1 000 1 200 1 400 1 600 1 800 1950 60 70 80 90 2000 10 20 30 40 50 200 400 600 800 1 000 1 200 1 400 1 600 1950 60 70 80 90 2000 10 20 30 40 50 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

0.1 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

• f 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 5 10 15 20 25 30 1950 60 70 80 90 2000 10 20 30 40 50 Brazil Russia China 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 3.5 3.7 3.3 7.8 11.4 3.1 0.3 0.4 6.7 7.4 1.8 1.4 1.3 7.6 6.0 2.1 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

2 4 6 8 10 12 2000 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

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

• 0.5

0.3

• 0.8

1.3 1.2 5.6 5.4

• 2

2 4 6 8 Brazil Russia India China

Other sources of growth Impact of Demographic Change

1.5 0.7 5.9 4.6

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

5 10 15 20 25 30 1990 95 2000 05 10 15 20

Brazil India China 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

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 10 20 30 40 50 60 70 80 90 Brazil Russia India China South Africa Female Male 10 20 30 40 50 60 Brazil Russia India China South Africa 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 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

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

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)

200,000 400,000 600,000 800,000 1,000,000 1,200,000

• 1
• 0.5

0.5 1 1.5 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 change WAP share (left axis) Population aged 15-64 (right axis) 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 0.5 1 1.5 2 2.5 1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030 2034 2038 2042 2046 2050 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
• First and second demographic dividends
• National and cross-border effects
• Direct and indirect effects
• But it’s not all about demographics
• Cyclical and structural
• 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.