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January 5, 2017

Demographic Dividend, Human Capital, and Accelerated Economic Growth: Lessons from Asian countries and its implications for Eritrea

by asmaraonline

asmarahutBy Teweldeberhan Gebre

Part I

1. Introduction

Population age-structure changes endure three broad phases:

Firstly, demographic transition sets off with high fertility and mortality rates. In the process of this change infant and child mortality start to decline accelerating population growth as a result of improved child survival which increases the share of children in the total population.

Secondly, as a consequence of higher child survival, fertility rate declines while the number of the elderly remains relatively small, and thus, it triggers a reduction in total fertility rate and opens up a new demographic window of opportunity for economic growth for a definite period of time.

Thirdly, after an-all-time high level share of the working-age population it starts to decline against the rise of the elderly population decelerating economic growth. Hence, population age-structure change occurs when rapid waning in mortality offers a unique baby-boomer generation followed by the fall of fertility that decreases the number of successive child cohorts. In other words, age-structure begins to change as the baby-boomer generation reaches the working-age population opening new window of opportunity known as demographic dividend.

Demographic dividend provides policy-makers an opportunity to formulate proactive policies that accelerate economic and social development. It accelerates economic growth by increasing the size of the labor force, freeing more resources for education and health per child, increasing the human capital base, and increasing national saving for investing in productive economic sectors. Recent literature reviews support that demographic dividend, the result of an inevitable consequence of population age-structure transition, accelerates economic growth by fueling per capita income growth and social transformation. But, benefits of demographic dividend (demographic bonus) are not inevitable and automatic. More importantly it is time-bound and has a beginning and an end. It means it is responsive to opportune strategic policies and investments, particularly investment in human capital development. In order to earn the benefits of demographic dividend, a one-time opportunity of population age structure change, countries need to adopt a mix of policies to promote strategic investments and an enabling environment.

According to the UN population projection (2015) Eritrea’s population transition will not take place before 2030. Afterwards Eritrea’s population age structure will begin to change in which case a bulge of economically active people (15-64 years of age) will constitute a high proportion against the total dependency ratio. From the experience of developed and countries in transition Gribble and Bremner (2012) identified three enablers of the demographic dividend: (i) investment in education and public health, (ii) steering on economic growth and job creation, and (iii) governance and accountability.

The demographic dividend, in addition to accelerating economic growth, sustains human development over the long-term. In the opinion of the author strengthened institutions and citizens’ participation are crucial to reap the demographic dividend. Governments need proactively develop the education and the health systems, and create favourable investment climate for value added jobs and wealth to sustain growth and human development.

The paper discusses the links between demographic dividend, human capital and economic growth. This will not be a comprehensive overview. Rather it provides a specific perspectives on the links of demographic dividend, human capital and economic growth vis-à-vis lessons drawn from East Asia experience with policy implications for Eritrea.

Part II continues…

Read more from Economy, Governance, Government

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