Economic growth and demography relation.

For many years economists debated about the influence of population growth and economic growth. There were three views on this issue: demographic growth restricts, promotes or independent of economic growth. These debates referred to size and growth of population only. However, in recent decades economists narrowed demographic factor to more significant one: age structure (the way population is distributed across age groups).

As different age groups tend to have very different economic behaviour and have an impact on government policy, the changes in age structure of a country may lead to a significant impact on economic development. Large per cent of children in society means that many resources (including government taxes) will be spent on care of their health which would tend to decrease pace of economic growth.

Very similarly the economy will react to a large proportion of older people (who left the country's labor force). However, there are economists in Japan who suppose that older population may lead to technological progress and create more opportunites without shifting the rate of unempoyment.

There exists special term called «demographical transition» which often characterized with at first decline in mortality then fall also in fertility rates. As the result, population in general is growing faster than working-age population which leads to a «demographical burden». Later, fertility rates falls and that leads to higher growth of working-age population than the whole population and turns «burden» into «demographical dividend» (cf. Bloom et al. 2003b). What is more, according to Mason(2005), the working-age population also rises due to lower mortality.

The inverse picture may be seen when large proportion of people are of working age. Good demographical situation, appopriate government policies, health and good financial situation may give a synergic effect on wealth of society (or GDP). As we can see, very high proportion of working age in the population may give so-called «demographical dividend» for economy. It must be mentioned that even if the country has a good demographical structure(as written above), it does not guarantee «dividends» for economy. Higher added productivity of labour will be only reached if it is combined with the right government policy aimed at developing country’s infrastucture. Right government policy includes(David E. Bloom, David Canning, Jaypee Sevilla, 2003):
1) Public health programs
2) Family planning

3) Education
4) Economic policies that promote labor-market flexibility, openness to trade, and savings.

And, of course, government must think of the time when these people will enter the retiring age as they would need health care programs and pension income which will government pay them.
All these four aspects are considered to be vital to exploit good demographic environment. Figure 4 illustrates how boom in birth rates may influence the share of working population and, at the same time, decrease so-called «dependency ratio» with time. Dependency ratio is often calculated this way:

Figure 4. Population growth and working population growth trends.

The «demographic dividend» mentioned above is reached through several aspects. Some of them seem to be obvious and tangible, but some are less apparent. David E. Bloom, David Canning and Jaypee Sevilla(2001) indicate three of them: labour supply, savings and human capital.
Firstly, when the generation of higher proportion of people than generations after and before it is leaking into the labour force, it decreases the proportion of dependents in the economy. This effect especially strong when these people are between 25 and 59(approximately), because this age group is believed to reach the peak of labour productivity. What is more, women who have been brought up in small family size are more likely to be more educated (according to International Labour Organization). This gives the economy’s labour force more productive workers and leads to increase in productivity of labour in general.

Secondly, demographic transition have an influence on saving rate in economy. Working-age population tend to produce greater output and save more than they consume in comparison to young and old population groups. Increase in savings causes the rise of growth and investment prospects for the country. Moreover, people between 40 and 65 have a tendency to save more for their happy and provided with enough money retirement than investing in their children. This effect is even increased when a country have high standard of living and life expectancy as older population expect to live longer in retirement and, as the result, they save more money.
Thirdly, capital accumulation mechanism seems to be the most intangible and more far-reaching. As we know, demographic transition starts with lowered mortality which means better population health conditions and longer life expectancy. Longer life expectancy leads to a significant change of population behavior: individual becomes a more valuable assets. As people know that they will have a longer life, they tend to dedicate more years to their education. Demographical transition also means lower fertility rate (the rate of fertility is often calculated as average number of children born per woman in a specific year) and, as the result, smaller family size. In the case of smaller numbers of children, parents will educate their children at more advanced level. What is more, healthier children tend to learn more productive per year in schooling in comparison to less healthy children.