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National Transfer Accounts and Demographic Dividends

by National Transfer Accounts Project

NTA Bulletin, No. 9

Publisher: Honolulu: National Transfer Accounts Project
Publication Date: July 2016 revised
Binding: paper
Pages: 4
Free Download: PDF

 

Demographic dividends are economic benefits that arise from changes in population age structure and from other demographic forces, enhancing opportunities for economic development. As falling fertility results in fewer dependent children relative to workers, a country experiences a first demographic dividend, with resources becoming available to increase investments and raise standards of living. The economic boost can be substantial, but it eventually comes to an end as the smaller population of children grows up to become a smaller population of workers while the number of elderly keeps growing.

Depending on the choices made by families and the policies pursued by governments, however, the first dividend can direct more resources into pro-growth investment, resulting in a second, more long-lasting, demographic dividend. National Transfer Accounts (NTA) analysis over the past few years points to two important channels through which this occurs.

For one thing, changing demography can lead to higher rates of saving and investment. A working-age population facing a long period of retirement has a powerful incentive to accumulate assets. The second channel is through human-capital investment. Countries with low fertility invest more in the education and health of each child, and the improved skills and capabilities of each worker can more than compensate for the slower growth of the work force.

For the many countries currently experiencing a first demographic dividend, NTA can help understand how the benefits can be accelerated, prolonged, and directed toward important development goals. Other countries, which have completed the first dividend, can use NTA to understand how economic benefits can be sustained and how governments and families can best prepare for population aging.