Population Pessimism and Economic Optimism in the Asian Giants

Abstract

The timing of China’s and India’s demographic transitions and the implications of alternative fertility scenarios are explored here using a global economic model incorporating full demographic behaviour and measures of dependency that accurately reflect the changing proportion of workers, rather than working-aged, in the total population. The baseline scenario confirms that demographic change in India may yield significant gains to future real per capita income, resulting from a continuing sharp decline in its total dependency ratio. For China, these gains are largely in the past, although the positive contribution of declining youth and working-aged dependency to future per capita income will continue to offset the negative impact of rising aged dependency through to 2030. Whilst a policy change to foster higher fertility rates and hence more rapid population growth in China might ultimately ease its dependency burden, in the short run it will increase it. In any case, such a course is contradictory to the goal of delivering improvements in real per capita income. For India, we confirm that the benefits of further fertility reductions, in the form of increased real per capita income, are substantial.