Contribution of demography to economic growth

Abstract

The importance of the demographic transition on per-capita income growth was neglected for a long time, mainly because of a myriad of inconsistent correlations between population and economic growth (Kelley 1988).1 It was not until the 1990s, using empirical convergence models à la Barro (1991, 1997), that several scholars were able to better isolate the effect of demography on economic growth (Kelley and Schmidt 1995; Bloom and Williamson 1997, 1998). Their main finding was that demography has a strong and positive effect on economic growth when the working-age population grows faster than the dependent population, known as first demographic dividend. Later on, Kelley and Schmidt (2005) added an important contribution by considering, in their convergence model, that changes in the age distribution of the population (known as the translation component) were likely to affect the productivity of workers (the productivity component). By doing so, they estimated demography to account for 20% of the per-capita income growth worldwide between 1965 and 1990, which was validated for the EU by several scholars (Prskawetz et al. 2007).(...)