Who Earns the Next Demographic Dividend?

The demographic dividend is a posited driver of rapid economic growth in certain circumstances. In a nutshell, when the ratio of workers to dependents in a country goes up, the aggregate output of that country’s economy will also go up, and when the ratio goes down, the output will also go down. What makes the ratio go up and down? Well, in the early phases of a demographic transition (when death rates fall rapidly due to improvements in public health and nutrition), the ratio “worsens” (more children survive so the percentage of dependent children goes up); in the middle phase, the ratio “improves” (the birth rate drops, and a bulge makes it way up the population pyramid, eventually reaching prime working age); and in the last phase, the ratio “worsens” again (as the bulge reaches retirement age and the large elderly population needs to be supported by a smaller working-age population). So the demographic “dividend” occurs when a country reaches that second phase, with a large population of 25-45 year-old working people and relatively smaller sub-18 and over-65 cohorts.

Precisely because it is a temporary demographic situation, countries really need to take advantage when they are “in the zone.” South Korea and Ireland were able to do that very effectively, each following a different national economic strategy – Korea following the Japanese path of export-led development via large manufacturing conglomerates and Ireland becoming an outsourcing center for a variety of different kinds of services – but in each case successful in substantial part because of a high degree of integration with the global economy. Cuba, by contrast, because of its isolation, has been much less able to take advantage, and now faces a real economic challenge as its population ages.

So: who’s next?

Well, I can think of a couple of good candidates out there.

But one in particular stands out. The next ten years are going to be a critical period, in which they either take advantage of an opportunity to integrate into the global economy, and reap a substantial dividend from the demographic transition – or they don’t, and they don’t.