China vs. India: Demographics

I thought that it would be worth looking into the demographics of China.  It would be nice to actually quantify its effect a bit more closely.  Luckily, I found a paper that did just the type of analysis that I was looking. David Bloom and Jeffrey G. Williamson wrote “Demographic Transitions and Economic Miracles in Emerging Asia”, published in April 1998. They used demographic and economic data from 1965 through 1990 to generate estimates on the impact of a demographic dividend.  They measured the impact of the growth of the population, the growth of the working age population (15 through 65) and other common variables on per capita GDP growth.  I took the average of the coefficients in table 4 to do a country specific analysis of China and India.  On average, the growth of a working age population helps per capita GDP growth by about 1.7% for every additional percent growth in working population, while every percent growth in the total population hurts per capita growth by 1.4%.

Without a demographic Dividend, China’s GDP growth would be marginally lower:

The demographic dividend’s effect (blue line) is disappearing, and will go negative after 2015. The orange line measures the total impact of population on GDP, combining the dividend’s effect on per capita income with the overall population change.

For India, their demographic dividend is mainly in the future.

India’s overall GDP growth will slow down with their general population growth, but their per capita GDP growth will be benefiting from a demographic dividend for quite some time.

This analysis relies on coefficients from 1965 through 1990, so the impact of the elderly is not going to be properly quantified.  There were no countries facing an abnormally large elderly population that expected benefits from the government. When the Bloom & Williamson paper separated out the youth dependency and elderly dependency ratios, they found that an elderly population actually added marginally to growth (Which makes some sense since unlike with youth the elderly population is marginally productive).  However, after economies have had to deal with the potential fiscal crisis due to their aging population the effect might be found to be quite a bit more negative.

I suspect that some measure of this nature might be helpful in separating out convergence growth from demographic driven growth. Unfortunately, the nature of the demographic dividend is that the dividend occurs during convergence, so a simplistic analysis can only explain so much.  

Data: April 2010 IMF WEO database was used for PPP GDP data. The 2008 UN World Population Prospects database (medium variant projections) was used to get the age structure of China and India.