Estimating the growth effect of the demographic dividend

Abstract

The “demographic dividend” refers to the boost to GDP per capita growth countries experience during the part of the demographic transition when age dependency ratios plummet. The size and the source of the dividend are debated in the literature. Using newly constructed age-specific population data by country from the beginning of the demographic transition to the present day, this paper estimates the contribution of changing age structure to GDP per capita growth during the demographic transition. A quantitative overlapping-generations model is used to produce country-specific estimates of the dividend and to disentangle its drivers. Model simulations for 101 countries suggest a global average boost of 0.40 percentage points per annum to GDP per capita growth during the dividend period. Changing age structure explains 9.5% of total growth during the period of the demographic dividend on average. Countries with more rapid and more extreme changes in age structure experience larger dividends.