Population Bonus

8/12/2019 Population Bonus

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Economic growth is an increase in the production and consumption of goods and services. Itentails increasing population and/or per capita consumption. Economic growth is the mostfundamental indicator of an economy's health - the rate at which national income isgrowing.

It is conventionally measured as the percent rate of increase in real gross domestic product ,

or real GDP . Of more importance is the growth of the ratio of GDP to population (GDP per

capita), which is also called per capita income . An increase in per capita income is referred to

as intensive growth . GDP growth caused only by increases in population or territory is

called extensive growth .[2]

Growth is usually calculated in real terms i.e., inflation-adjusted terms to eliminate thedistorting effect of inflation on the price of goods produced. In economics , "economic growth" or

"economic growth theory" typically refers to growth of potential output , i.e., production at "full

employment ".

As an area of study, economic growth is generally distinguished from development economics .

The former is primarily the study of how countries can advance their economies. The latter is the

study of the economic aspects of the development process in low-income countries.

Since economic growth is measured as the annual percent change of gross domestic product(GDP), it has all the advantages and drawbacks of that measure. For example, GDP only

measures the market economy, which tends to overstate growth during the change over from a

farming economy with household production. An adjustment was made for food grown on and

consumed on farms, but no correction was made for other household production. Also, there is no

allowance in GDP calculations for depletion of natural resources.
http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Economic_growth#cite_note-2http://en.wikipedia.org/wiki/Economic_growth#cite_note-2http://en.wikipedia.org/wiki/Economic_growth#cite_note-2http://en.wikipedia.org/wiki/Real_vs._nominal_in_economicshttp://en.wikipedia.org/wiki/Real_vs._nominal_in_economicshttp://en.wikipedia.org/wiki/Real_vs._nominal_in_economicshttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Potential_outputhttp://en.wikipedia.org/wiki/Potential_outputhttp://en.wikipedia.org/wiki/Potential_outputhttp://en.wikipedia.org/wiki/Full_employmenthttp://en.wikipedia.org/wiki/Full_employmenthttp://en.wikipedia.org/wiki/Full_employmenthttp://en.wikipedia.org/wiki/Full_employmenthttp://en.wikipedia.org/wiki/Development_economicshttp://en.wikipedia.org/wiki/Development_economicshttp://en.wikipedia.org/wiki/Development_economicshttp://en.wikipedia.org/wiki/Development_economicshttp://en.wikipedia.org/wiki/Full_employmenthttp://en.wikipedia.org/wiki/Full_employmenthttp://en.wikipedia.org/wiki/Potential_outputhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Real_vs._nominal_in_economicshttp://en.wikipedia.org/wiki/Economic_growth#cite_note-2http://en.wikipedia.org/wiki/Gross_domestic_product


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Relationship between population and economic growth

Asia (South and East) and the Pacific


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In the early of twenty- first century, the world population had fluctuated around six billion, in which developing countries contributed to 80% of the total amount

1 2 3 4 5 6 7 8 9 10

PopulationGrowth

TotalPopulation

LifeExpectancy at

Birth

InfantMortality

Rate Child Mortality

Rate

average annualgrowth rate (%) millions years

per 1,000live births

Maleper

1,000

Femaleper

1,000 1980-1998

1998-2015 1998 2015 1980 1998 1980 1998

1988-98

1988-98

L 1 Afghanistan .. .. 25 .. 40 46 183 149 .. .. H 2 Australia 1.4 0.2 19 22 74 79 11 5 .. .. L 3 Bangladesh 2.1 1.5 126 162 48 59 132 73 37 47 L 4 Cambodia 2.9 1.5 11 15 39 54 201 102 .. .. M 5 China 1 1 1,239 1,389 .. 70 42 31 10 11

H 6 Hong Kong,China 1.6 1 7 8 74 79 11 3 .. ..

L 7 India 2.0 1.3 980 1225 54 63 115 70 29 42 L 8 Indonesia 1.8 1.2 204 251 55 65 90 43 19 20 H 9 Japan 0.4 -0.1 126 125 76 81 8 4 .. ..

M 10 Korea, Dem.Rep. 1.5 0.7 23 26 67 63 32 54 .. ..

H 11 Korea, Rep. 1.1 0.6 46 51 67 73 26 9 .. .. L 12 Lao PDR 2.4 2.2 5 7.2 45 54 127 96 .. .. M 13 Malaysia 2.7 1.6 22 29 67 72 30 8 4 4 L 14 Mongolia 2.4 1.5 3 3 58 66 82 50 .. .. L 15 Myanmar 1.5 1.1 44 54 52 60 109 78 .. .. L 16 Nepal 2.5 2.1 23 32 48 58 132 77 .. .. H 17 New Zealand 1.1 0.5 4 4 73 77 13 5 .. .. L 18 Pakistan 2.6 2.3 132 195 55 62 127 91 22 37

M 19 Papua NewGuinea 2.2 1.8 5 6 51 58 78 59 28 21

M 20 Philippines 2.5 1.7 75 100 61 69 52 32 21 19 H 21 Singapore 1.8 1 3 4 71 77 12 4 .. .. M 22 Sri Lanka 1.3 1.1 19 23 68 73 34 16 10 9 M 23 Thailand 1.5 0.9 61 71 64 72 49 29 11 11 L 24 Vietnam 2 1.2 77 94 63 68 57 34 .. ..

.. means that data are not availabe or that aggregates cannot be calculated because of missing data in the yearshown.* PPP is purchasing power parity . H. High-income economy . L. Low-income economy . M. Middle-income economy . h. Estimated to be a high-income country.l. Estimated to be a low-income country.m. Estimated to be a middle-income country.
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and mostly occur in Asian countries. The fact is population and economicgrowth always has a close relationship. Over periods, economists and othersocial scientists have long debated how population affects a society. The mostdirect effect is on the size of labor force: A large population means moreworkers to produce goods and services. The tremendous size of the Chinese

population is one reason why China is such an important player in the worldeconomy.

Rapid population growth rates can make it difficult for countries to raise standardsof living and protect the environment because the more people there are, thegreater the need for food, health care, education, houses, land, jobs and energy.Adding more people to a countrys population means that the wealth must bedistributed among more people, causing GNP per capita to decrease at least inthe short term.

Responding to the needs of a rapidly growing population can challenge a countrysability to manage its natural resources on a sustainable basis. For example,

people may not be able to get access to safe water because more and morehouseholds, farms and factories are using increasing amount of water.

Deforestation may occur as trees are cut to provide fuel for cooking, buildingmaterials or land for grazing and agriculture. Desertification may occur as landthat has been intensively farmed becomes depleted of its nutrients or erodedwhen trees whose root systems once anchored in the soil are gone. The air may

become polluted as people crowd into cities, the number of cars increases, people use more and more energy and economies continue to industrialize.


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3.1 Positive effects3.1.1 The Economies of Scale phe nomenon of population growthAccording to Kendrick (1977), economies of scale are an important factor toincrease the productivity (increase in output per unit of labor) of one nation. A country,which has a rapid population growth, can suffer many burdens, such as capital dilution,shortage of necessity resources and the casualty could lead the whole population to

poverty, famine and starvation. However, there are three arguments supported for theidea that population growth can boost the country economy by economies of scale

phenomenon.Firstly, a nation, which has a rapid population growth rate, means that its population sizewill develop with a quicker rate. The bigger the population size is, the larger the marketsize becomes. In order to meet the product demand of the large-size market, bigger and moreeffective as well as longer performance period manufacturing plants are required todevelop (Simon 1994). Therefore, the producing cost and setup cost per one output have

tendency to reduce.

Secondly, the large-scale of population not only have a large size market but also possessan impressive number of labors. Because of the availability of labor force, it is possiblefor firms to divide their labor into particular division of labor to do specific tasks. Anexcellent example of specialization is car assembly line in which each division just takesresponsibility of installing only one part of the car such as engine or car wheels.According to Adam Smith, division of labor has caused a greater increase in

production than any other factor. This diversification is greatest for nations with moreindustry and improvement, and is responsible for "universal opulence" in thosecountries . Moreover, through specialization, working skill of labor force is likely toimprove more quickly with learning-by-doing. Since a large size of population demands atremendous number of products, these workers have more chances to improve theirworking skill. As a result, the average time spending for producing one unit of outputhave tendency to decrease more quickly than in smaller market-size. Correlating withsaving producing time, the cost per one product is also deducted and firm is moreefficient through specialization.Finally, the rapid population growth rate could cause a positive effect on communicationand transportation. Transportation plays an important role in economic development. Agood transportation system can help reduce transportation cost and travel time. Alongwith high population growth rate, the increase in population density is inevitable. A dense

population is likely to pressure the government to develop more in transportation systemsuch as railroad, highways and road. Take China as an example, according to United

Nations Population Division, in 1985, its population density was 110 people/km 2 and the

total amount of railroad was 52,000 km while in 2010, the total length of railroad is91,000 km (increase 75%) and its population density is 141 people/km 2 (increase 28%).3.1.2 Acceleration of technological progressA country, which has a higher population growth rate, implies that there is a rapidincrease in school-age population. Instead of investing in other essential industrials toincrease the overall capital accumulation, the government has to spend more publicspending in schooling and educational facilities. The pressure created by massy numberof school-age population also retards the general education level of the nation. However,in long run, huge investment in education in present can result in the accumulation ofhuman capital, which is a special stock of competence, knowledge, personalities as wellas the ability to produce economic value. Human capital has two effects on economic

development. First, human capital can be used as a productive factor like other capitalslike machine, vehicles etc. Second, human capital can directly contribute to thedevelopment of new technology which effect positively to the productivity. Hence,


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greater population growth tends to raise the level of technology growth.The population growth enlarges the size of labor force, so, the average wage rate,therefore, is pushed down. In developing countries, low wage rate is considered animportant factor in the progress of industrialization and modernization, which are closelyrelated to the wealth of the nation. Moreover, instead of spending a huge amount ofmoney to pay the labor, firm can invest more in R&D sector, which finally result in the

sufficient development of new technology that leads to higher productivity. Hence, thegrowth of population is likely to help firms to have a better chance in competing withother foreign rival firms.

http://www.worldbank.org/depweb/english/modules/social/pgr/case1.html
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Taking advantage of the demographic bonus in Vietnam: East Asian and AsianExperiences

Demographic bonus occurs when a the Total Dependency Ratio is less than 50,meaning that a person of non-working age will be supported by more than twoworking age persons. As a matter of fact, as demographic changes which involves bothFertility and Mortality Rates, the age structure is also changed producing aDemographic Bonus in a certain period.Demographic bonus period does not last forever. In fact, it only comes in a specificduration. Therefore, any country in Demographic period must adjust its own social,economic and political factors so that it can take the most advantage of such a great

population structure.

The Figure 1 above compares the growth of per capita income in East Asia and Asiancountries for the period from 1950 to 2005. Obviously, except for Japan which proved

to be one of the most developed countries in the world, Asian countries had the samelevel of per capita income from 1950 to about 1965. However, from 1965 on, therewere some differences in the growth. To be more specific, Taiwan and South Koreawere two countries that experienced the fastest and most significant improvements intheir earnings per person. Besides, the period also witnessed a moderate positivechange in the per capita income of both Malaysia and Thailand. Indonesia andPhilippines had a positive change in their per capita income at the beginning of this

period but then suffered from some negative effects which drove their individualearnings down.


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Figure 2 illustrates the per capita income growth rate of Asian countries during the period of 30 years from 1960 to 1990. South Korea, Singapore, Taiwan and Japan hadthe highest rate with over 5% each. Thailand and Indonesia are in the same area butstill had a much lower rate of income growth than those four countries mentionedabove. By and large, it may take those two countries several decades to catch up withthe growth of such countries. So What are the underlying causes? What enables themto make such a big difference?

1. East Asian Experience:

To begin with, age structure is one of the major factors that contribute to the success ofEast Asian countries over the above period. Age structure presents the distribution of a

population by age or age group. The fact that each age and age group has differentcharacteristics in terms of labour and consumption has distinct consequences for theeconomy of a country. The young, for example, require an intensive investment inhealth and education in order to produce a healthy and skillful labour force later, whilethe elderly require good health care and sustainable retirement schemes. When therelative size of each of these groups in a population changes, so does the Intensity ofthe related economic opportunities and pressures because of their impact on economicgrowth and per capita income. According to Bloom and Williamson (1998) who ran across-country regression of economic growth applied to developing and developedcountries, the results indicate that the population dynamics can explain as much as onethird of the miracle happening in the growth of GDP per capita in East Asia.In addition to age structure, there are also several factors that lead to the so-calledmiracle era in East Asia, including : a large and high quality base of humanresource, a stable population and strong growth of employment and last but not least,


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the high savings and investment rates.

Source: JICA (2003)According to JICA (2003), Japan had taken a comprehensive population policythroughout crucial sectors such as the healthcare system, financial and fiscalsectors, educational sectors, industrial structure and social related fields. All ofsuch improvements contributed to the 5.3% of growth rate in per capita incomein Japan for the late twentieth century (Figure 2).

Moreover, a substantial increase in the labor force coupled with high employmentrate took an integral part in East Asias success making its population strongand economically active in the world market. High-performing economies in

Asia has the most significant labour force growth rate compared to the population growth rate with the difference of 0.8- the highest number in thetable 1.

In the meantime, employment and productivity especially in service andmanufacturing sectors improved enormously. A reduction in the number ofagricultural laborers was made up for by the growth in the labor productivity inthe agriculture. From the Table 2, it is striking that Japan was among thecountries with lowest growth rate in the agricultural labor force (-3.9%) but thehighest growth rate in the labor productivity in the same sector (4.5%)


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Saving and investment through the efficient mobilization of internal resources played a crucial role with regard to the persistent growth during the miracle eraof this region as well: Figure 4 shows that, during 1960-1990, the average annualgrowth rate of per labour capital in Japan was 7.6%, as compared to that of South


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Korea and Taiwan which was more than 8.5%.

Source: Summer and Preston (2001), as quoted by East-West Center (2009)

In addition to the important factors mentioned above, a number of studiesindicate that favorable economic and political conditions also largelycontribute d to East Asias ability to make the utmost use of the DemographicBonus. Along with the steep growth of capital stocks and quality human resources,

active strategies and policies of East Asian governments further helped toexplore the potential of a solid base of knowledge and technological knowhow

for the internalization of economic growth. Figure 5 shows the difference between South Korea and Ghana in terms of per capita income. In this figure, for

the sake of comparison, per capita income is estimated by the 1990 prices. It isobvious that after three decades of growth, the gap between the two countrieswas still widening despite having a same starting point in the early 1950s;South Korea became a high income country, while Ghana remained poor. Inthis case the diff erence was largely attributed to diff erences in knowledge andknow-how (World Bank, 1997).


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2. Asean Experience:The Demographic transition in ASEAN countries has occurred more slowly than

that in East Asia. According to the data from United Nations in 2008, Aseancountries have just started their Demographic Bonus period with Singapore

being the first country from 1980, followed by Thailand in 1990 and Indonesiaand Vietnam in 2010.


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Source: Own compilation from the United Nations (2008).

It can be seen from the graph that the average period of Demographic Bonus in

Asean countries is about 30 years.

One of the ways in which ASEAN countries can be characterized with regard to theireff orts to promote economic growth is by their signifi cantly diff erent educationaland health strategies and policies as well as diverse political environments. Both Thailandand Malaysia are trapped in the middle income level of development despite their heavyinvestment in the quality of the labor force. The root cause of this situation is that in these twocountries human resources are heavily dependent on foreign guidance, particularly withregard to managerial and productive skills. The growth rates of employment and labour

productivity have therefore not signifi cantly increased, and as such it has become diffi cult totake off like South Korea, Taiwan or Singapore have been able to do.In summary, the above analysis shows that a stage of Demographic Bonus hasoccurred or will occur in East Asian and ASEAN countries, but that the actual benefi tobtained from this important demographic opportunity is dependent on the diff erentapproaches which have been or will be employed to prepare and make use of it. Somecountries, e.g. Japan and South Korea, have been successful in this regard due to the effi cientuse of their human resources, while other countries are struggling to gain from theirDemographic Bonus period while they are already in the midst of it (e.g.Thailand) or are still

preparing to take advantage of the Demographic Bonus (Indonesia, Malaysia, and thePhilippines). As it thus appears, a Demographic Bonus period is only an opportunity; it willnot bring any Bonus to countries who do not have appropriate and well planned strategies


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and policies to make use of it. This is an important message for Viet Nam as it is on the vergeof welcoming its own stage of demographic opportunity.

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Population Bonus