Credit: Finance & Development, International Monetary Fund (IMF)

By David E. Bloom
WASHINGTON DC, Mar 17 2020 (IPS)

“Demography is destiny” is an oft-cited phrase that suggests the size, growth, and structure of a nation’s population determines its long-term social, economic, and political fabric.

The phrase highlights the role of demographics in shaping many complex challenges and opportunities societies face, including several pertinent to economic growth and development.

Nevertheless, it is an overstatement to say that demography determines all, as it downplays the fact that both demographic trajectories and their development implications are responsive to economic incentives; to policy and institutional reforms; and to changes in technology, cultural norms, and behavior.

The world is undergoing a major demographic upheaval with three key components: population growth, changes in fertility and mortality, and associated changes in population age structure.

It took more than 50,000 years for world population to reach 1 billion people. Since 1960, we have added successive billions every one to two decades. The world population was 3 billion in 1960; it reached 6 billion around 2000, and the United Nations projects it will surpass 9 billion by 2037.

The population growth rate has been slowing, however, from peak annual rates in excess of 2 percent in the late 1960s, to about 1 percent currently, to half that by 2050.

Although global income per capita more than doubled, life expectancy increased by 16 years, and primary school enrollment became nearly universal among children during 1960–2000, rapid population growth poses myriad challenges that are both privately and publicly daunting.

These challenges include the need for more food, clothing, housing, education, and infrastructure; the absorption of sizable numbers into productive employment; and more strenuous environmental protection.

Although the explosive nature of global population growth is abating in relative terms, decade-on-decade increases remain sizable and are taking place from ever more populated starting points.

Earlier concerns about a global population explosion have, to some extent, yielded to concerns about rapid population growth in particular countries and regions (see “Coming of Age” in the current issue of F&D).

Indeed, the overall slowdown in the rate of world population growth masks significant shifts in the distribution of world population by development status and geographic region.

Countries the United Nations classifies as less developed encompassed 68 percent of world population in 1950; today they represent 84 percent. That share will continue to rise, because virtually all of the nearly 2 billion net additions to world population projected over the next three decades will occur in less developed regions.

This is a major concern, because less developed regions tend to be more fragile—politically, socially, economically, and ecologically—than their more developed counterparts.

With 1.44 billion people, China currently has the largest national population in the world, followed by India, with 1.38 billion. But by the end of this decade, India will be the most populous country, with a projected 1.50 billion people, compared with China’s peak population of 1.46 billion.

Between 2020 and 2050, Nigeria (projected to overtake the United States to become the world’s third-most-populous nation) and Pakistan—already among the 10 most populous—will surge forward. Asia will continue to be home to a dominant but declining share of the world’s population (60 percent today and 54 percent in 2050).

Finally, notwithstanding continued global population growth, in 61 countries and territories that are currently home to 29 percent of the world’s people, population growth in 2020–50 is projected to be negative, with the sharpest decline (−23 percent) projected for Bulgaria (see “Eastern Europe’s Exodus” in this issue of F&D).

Population size and growth reflect the underlying forces of mortality, fertility, and international migration. These forces vary considerably across countries and can help account for key differences in economic activity and performance, such as physical capital, labor, and human capital accumulation; economic well-being and growth; and poverty and inequality.

These forces generally respond to economic shocks; they may also respond to political developments such as the beginning and ending of wars and governance crises. In many developing economies, population growth has been associated with a phenomenon known as the “demographic transition”—the movement from high to low death rates followed by a corresponding movement in birth rates.

For most of human history, the average person lived about 30 years. But between 1950 and 2020, life expectancy increased from 46 to 73 years, and it is projected to increase by another four years by 2050.

Moreover, by 2050, life expectancy is projected to exceed 80 years in at least 91 countries and territories that will then be home to 39 percent of the world’s population. Increased longevity is a colossal human achievement that reflects improvements in survival prospects throughout the life cycle, but especially among infants and children.

Cross-country convergence in life expectancy continues to be strong. For example, the life expectancy gap between Africa and North America was 32 years in 1950 and 24 years in 2000; it is 16 years today.

Historic and anticipated reductions in cross-country health disparities reflect gains in income and nutrition among low- and middle-income countries, the diffusion of innovations in health technologies and institutions, and the distribution of international aid.

In the 1950s and 1960s, the average woman had roughly five children over the course of her childbearing years. Today, the average woman has somewhat fewer than 2.5 children.

This presumably reflects the growing cost of child-rearing (including opportunity cost, as reflected mainly in women’s wages), increased access to effective contraception, and perhaps also growing income insecurity.

The social and economic implications of this fertility decline are hard to overstate. Among other things, lower fertility has helped relieve many women of the burden of childbearing and child-rearing.

It has also contributed to the empowerment of women in their households, communities, and societies and has allowed them to participate more actively in paid labor markets. All these factors reinforce the preference for low fertility.

Between 1970 and 2020, the fertility rate declined in every country in the world. Fertility tended to decrease more in countries with high initial fertility, another facet of demographic convergence. Among geographic regions, Africa and Europe are currently homes to the highest (4.3) and lowest (1.6) fertility rates, respectively.

If the population’s age structure is sufficiently weighted toward those in prime childbearing years, even a fertility rate of 2.1 can translate into positive population growth in the short and medium term, because low fertility per woman is more than offset by the number of women having children.

This feature of population dynamics is known as population momentum and helps explain (along with migration) why the populations of 69 countries and territories are currently growing even though their fertility rates are below 2.1.

Cross-country migration is also relevant to population growth. The effects are quite important in some countries, such as Guyana, Samoa, and Tonga, where net emigration in the past 30 years has been appreciable.

Bahrain, Qatar, and the United Arab Emirates have had the highest rates of net immigration. Among the world’s 10 population super powers, migrants have the largest relative presence in the United States (15 percent in 2019).

For most countries, though, international migration has not been a dominant demographic force, because more than 96 percent of the world’s population currently live in their countries of birth (see “Immigrant Swan Song” in the current issue of F&D).

The age structure of a population reflects mainly its fertility and mortality history. In high-mortality populations, improved survival tends to occur disproportionately among children. This effectively creates a baby boom.

Eventually, the boom ends when fertility abates in response to perceptions of improved child survival and as desired fertility declines with economic development. But as the relatively large baby-boom cohorts proceed through adolescence and into their adult years, the population share at the peak ages for work and saving swells.

This enhances the productive capacity of the economy on a per capita basis and opens a window of opportunity for rapid income growth and poverty reduction. Events of the past decade, ranging from the Arab uprisings to more recent mass protests in Chile and Sudan, also show that countries that fail to generate sufficient jobs for large cohorts of young adults are prone to social, political, and economic instability.

The “demographic dividend” refers to the process through which a changing age structure can spur economic growth. It depends, of course, on several complex factors, including the nature and pace of demographic change, the operation of labor and capital markets, macroeconomic management and trade policies, governance, and human capital accumulation.

Nonetheless, the demographic dividend model can account for much variation in past economic performance among different countries and regions (e.g., East Asia vs. Latin America vs. sub-Saharan Africa) and helps identify more- and less-promising country settings for future economic growth.

For example, from 2020 to 2030, Nepal, Jordan, Bhutan, and Eswatini are projected to experience the largest gains among countries in the ratios of their working-age to non-working-age populations.

The dependency ratio—the inverse of the working age to non-working-age ratio—measures the economic pressure working-age individuals face to support, in addition to themselves, those who are not of working age. In 1990, the ratio in more developed regions was appreciably lower than in less developed regions (0.68 versus 1.04).

But by 2020, as a result of different patterns of fertility decline and population aging, the ratio had increased to 0.70 in more developed regions and decreased to 0.75 in less developed regions.

And by 2050, the dependency ratio is projected to be greater in more developed regions (0.89) than in those that are less developed (0.77). This switch suggests that in the coming decades, demographics will be more favorable to economic well-being in less developed regions than in more developed regions.

This will be especially true in Africa, the only region in which this ratio is projected to decline by 2050.

For countries that have yet to experience appreciable demographic transitions (like Chad, the Central African Republic, Somalia, and Sierra Leone), policies are appropriately oriented toward catalyzing those transitions.

Such policies include investment that promotes infant and child survival, such as expanded vaccine coverage as well as wider access to well-provisioned and appropriately staffed primary health care systems.

For populations that have experienced health and survival gains, countries could benefit from policies to enable a decline in fertility, such as promoting girls’ education and access to reproductive health and family planning services.

And countries with relatively sizable portions of the population concentrated in the high-work and high-savings part of the life cycle need policies to realize the potential benefits of favorable demographics.

Such policies include support for the operation of competitive labor and capital markets, equipping workers with human capital, building infrastructure, sound macroeconomic management, carefully designed trade policies, and good governance. Such policies are always desirable, but a large working-age population share raises the stakes.

In some countries, making investments in these various sets of policies could be challenging, as per capita income is currently lower in real terms than it was in some of today’s advanced economies when they were at a comparable demographic stage.

Population aging is the dominant demographic trend of the twenty-first century—a reflection of increasing longevity, declining fertility, and the progression of large cohorts to older ages.

Never before have such large numbers of people reached ages 65+ (the conventional old-age threshold). We expect to add 1 billion older individuals in the next three to four decades, atop the more than 700 million older people we have today.

Among the older population, the group aged 85+ is growing especially fast and is projected to surpass half a billion in the next 80 years. This trend is significant because the needs and capacities of the 85+ crowd tend to differ significantly from those of 65-to-84-year-olds.

Although every country in the world will experience population aging, differences in the progression of this phenomenon will be considerable. Japan is currently the world leader, with 28 percent of its population 65 and over, triple the world average.

By 2050, 29 countries and territories will have larger elder shares than Japan has today. In fact, the Republic of Korea’s elder share will eventually overtake Japan’s, reaching the historically unprecedented level of 38.1 percent.

Japan’s median age (48.4) is also currently the highest of any country and more than twice that of Africa (19.7). But by 2050, Korea (median age 56.5 in 2050) is also expected to overtake Japan on that metric (54.7).

Three decades ago, the world was populated by more than three times as many adolescents and young adults (15- to 24-year-olds) as older people. Three decades from now, those age groups will be roughly on par.

By income group, the sharpest growth in the numbers of older people will occur in countries currently classified as middle income. This is unsurprising, as these countries make up 74 percent of the world population.

What may be surprising is that the older-population share in middle-income countries is increasing at a much faster rate than in their low- and high-income counterparts.

Moreover, in comparison with high-income countries, today’s middle-income countries are projected to have appreciably greater real incomes when their older-population shares reach comparably elevated levels. This contradicts the common claim that developing economies are getting old before they get rich.

The challenge middle-income countries face is not predominantly insufficient income to take care of their older people. Rather, it is how well institutions and policies can promote economic and social security among older people in a financially sustainable way.

Population aging is sounding alarms worldwide. Whether increased longevity is associated with more or less of a person’s life lived in frailty is among the most salient unresolved questions public and private policymakers throughout the world face (see “The Long, Good Life” in the current issue of F&D).

Economists continue to express concerns. These relate to downward pressure on economic growth due to labor and capital shortages and falling asset prices in the future as a growing and more aged cohort of older people seeks to support itself by liquidating investments.

Another major issue has to do with fiscal stress. Government coffers will be strained by rising pension liabilities and the cost of health and long-term care associated with the expected growth in the incidence and prevalence of chronic diseases such as cancer, among others.

These challenges will, however, be partially offset by the increasing, but typically neglected, value older people create through productive nonmarket activities like volunteer work and caregiving.

Without historical lessons from a world with such large numbers of older people, there is even more uncertainty about our collective future. However, adopting a business-as-usual approach to the challenges of population aging would be irresponsible.

Various responses could cushion the economic burden of population aging. These include policy reforms to promote the financial sustainability and intergenerational equity of health and pension financing.

Raising the legal age of retirement, which has been relatively stable in nearly all countries for the past several decades (see “Getting Older but Not Poorer” in current issue of F&D) would also ease the burden. Pronatalist tax incentives are also a policy option for the long term, but their effect on fertility is thus far unproven.

Additional approaches include efforts to increase health systems’ emphasis on early detection and on prevention of disease through, for example, better awareness of the benefits of physical activity and subsidization of such activity.

Relaxing the institutional and economic barriers to international immigration from regions with relatively large working-age populations could alleviate labor shortages.

Finally, technological innovations are likely to ameliorate the effects of population aging. New drugs to slow the process of aging and add healthy years to people’s lives and the invention and deployment of assistive devices such as robots are two among many such improvements.

Institutional innovations like new models of home health care, public transportation systems, the design of urban layouts, and financial instruments are also on the horizon.

Global, regional, and country demographic indicators have changed dramatically since the early 1950s and are poised for equally dramatic changes in the coming decades. Population aging continues to displace population growth as the focal point of interest among global demographic phenomena.

Nonetheless, both phenomena and their underlying drivers have had, and will continue to have, profound repercussions for myriad indicators and determinants of economic well-being and progress. Demographics are not, however, set in stone. Nor are their implications for individual and collective well-being.

*Opinions expressed in articles and other materials in Finance & Development are those of the authors and do not necessarily reflect IMF policy.

Finance & Development, a quarterly magazine published by the IMF, presents articles and book reviews on a wide variety of topics in international economics and finance, as well as economic development

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By David E. Bloom and JP Sevilla
WASHINGTON DC, Jul 3 2018 (IPS)

Infectious diseases and associated mortality have abated, but they remain a significant threat throughout the world.

We continue to fight both old pathogens, such as the plague, that have troubled humanity for millennia and new pathogens, such as human immunodeficiency virus (HIV), that have mutated or spilled over from animal reservoirs.

Some infectious diseases, such as tuberculosis and malaria, are endemic to many areas, imposing substantial but steady burdens. Others, such as influenza, fluctuate in pervasiveness and intensity, wreaking havoc in developing and developed economies alike when an outbreak (a sharp increase in prevalence in a relatively limited area or population), an epidemic (a sharp increase covering a larger area or population), or a pandemic (an epidemic covering multiple countries or continents) occurs.

The health risks of outbreaks and epidemics—and the fear and panic that accompany them—map to various economic risks.

First, and perhaps most obviously, there are the costs to the health system, both public and private, of medical treatment of the infected and of outbreak control. A sizable outbreak can overwhelm the health system, limiting the capacity to deal with routine health issues and compounding the problem.

Beyond shocks to the health sector, epidemics force both the ill and their caretakers to miss work or be less effective at their jobs, driving down and disrupting productivity.

Fear of infection can result in social distancing or closed schools, enterprises, commercial establishments, transportation, and public services—all of which disrupt economic and other socially valuable activity.

Concern over the spread of even a relatively contained outbreak can lead to decreased trade. For example, a ban imposed by the European Union on exports of British beef lasted 10 years following identification of a mad cow disease outbreak in the United Kingdom, despite relatively low transmission to humans.

Travel and tourism to regions affected by outbreaks are also likely to decline. Some long-running epidemics, such as HIV and malaria, deter foreign direct investment as well.

The economic risks of epidemics are not trivial. Victoria Fan, Dean Jamison, and Lawrence Summers recently estimated the expected yearly cost of pandemic influenza at roughly $500 billion (0.6 percent of global income), including both lost income and the intrinsic cost of elevated mortality.

Even when the health impact of an outbreak is relatively limited, its economic consequences can quickly become magnified. Liberia, for example, saw GDP growth decline 8 percentage points from 2013 to 2014 during the recent Ebola outbreak in west Africa, even as the country’s overall death rate fell over the same period.

The consequences of outbreaks and epidemics are not distributed equally throughout the economy. Some sectors may even benefit financially, while others will suffer disproportionately.

Pharmaceutical companies that produce vaccines, antibiotics, or other products needed for outbreak response are potential beneficiaries. Health and life insurance companies are likely to bear heavy costs, at least in the short term, as are livestock producers in the event of an outbreak linked to animals.

Vulnerable populations, particularly the poor, are likely to suffer disproportionately, as they may have less access to health care and lower savings to protect against financial catastrophe.

Economic policymakers are accustomed to managing various forms of risk, such as trade imbalances, exchange rate movements, and changes in market interest rates. There are also risks that are not strictly economic in origin.

Armed conflict represents one such example; natural disasters are another. We can think about the economic disruption caused by outbreaks and epidemics along these same lines. As with other forms of risk, the economic risk of health shocks can be managed with policies that reduce their likelihood and that position countries to respond swiftly when they do occur.

Several factors complicate the management of epidemic risk. Diseases can be transmitted rapidly, both within and across countries, which means that timely responses to initial outbreaks are essential. In addition to being exacerbated by globalization, epidemic potential is elevated by the twin phenomena of climate change and urbanization.

Climate change is expanding the habitats of various common disease vectors, such as the Aedes aegypti mosquito, which can spread dengue, chikungunya, Zika, and yellow fever. Urbanization means more humans live in close quarters, amplifying the transmissibility of contagious disease.

In rapidly urbanizing areas, the growth of slums forces more people to live in conditions with substandard sanitation and poor access to clean water, compounding the problem.

Perhaps the greatest challenge is the formidable array of possible causes of epidemics, including pathogens that are currently unknown. In December 2015 the World Health Organization (WHO) published a list of epidemic-potential disease priorities requiring urgent research and development (R&D) attention.

That list has since been updated twice, most recently in February 2018 (see table).

Beyond this list, diseases that are currently endemic in some areas but could spread without proper control represent another category of threat. Tuberculosis, malaria, and dengue are examples, as is HIV.

Pathogens resistant to antimicrobials are increasing in prevalence throughout the world, and widespread pan-drug-resistant superbugs could pose yet another hazard. Rapid transmission of resistant pathogens is unlikely to occur in the same way it may with pandemic threats, but the proliferation of superbugs is making the world an increasingly risky place.

Epidemic risk is complex, but policymakers have tools they can deploy in response. Some tools minimize the likelihood of outbreaks or limit their proliferation. Others attempt to minimize the health impact of outbreaks that cannot be prevented or immediately contained. Still others aim to minimize the economic impact.

Investing in improved sanitation, provisioning of clean water, and better urban infrastructure can reduce the frequency of human contact with pathogenic agents.

Building strong health systems and supporting proper nutrition will help ensure good baseline levels of health, making people less susceptible to infection. Of course, strengthening basic systems, services, and infrastructure becomes easier with economic growth and development; however, policies to protect spending in these areas even when budgets are constrained can help safeguard developing economies from major health shocks that could significantly impinge upon human capital and impede economic growth.

Investment in reliable disease surveillance in both human and animal populations is also critical. Within formal global surveillance systems, it may be beneficial to develop incentives for reporting suspected outbreaks, as countries may reasonably fear the effects of such reporting on trade, tourism, and other economic outcomes.

The SARS epidemic, for instance, might have been better contained if China had reported the initial outbreak to the WHO earlier.

Informal surveillance systems, such as ProMED and HealthMap, which aggregate information from official surveillance reports, media reports, online discussions and summaries, and eyewitness observations, can also help national health systems and international responders get ahead of the epidemiological curve during the early stages of an outbreak.

Social media offers additional opportunities for early detection of shifts in infectious disease incidence.

Collaborations for monitoring epidemic readiness at the national level, such as the Global Health Security Agenda and the Joint External Evaluation Alliance, provide information national governments can use to bolster their planned outbreak responses.

Additional research into which pathogens are likely to spread and have a big impact would be worthwhile.

Countries should be ready to take initial measures to limit the spread of disease when an outbreak does occur. Historically, ships were quarantined in port during plague epidemics to prevent the spread of the disease to coastal cities. In the case of highly virulent and highly transmissible diseases, quarantines may still be necessary, although they can inspire concerns about human rights.

Likewise, it may be necessary to ration biomedical countermeasures if supplies are limited. Countries should decide in advance if they will prioritize first responders and other key personnel or favor vulnerable groups, such as children and the elderly; different strategies may be appropriate for different diseases.

Technological solutions can help minimize the burden of sizable outbreaks and epidemics. Better and less-costly treatments—including novel antibiotics and antivirals to counter resistant diseases—are sorely needed. New and improved vaccines are perhaps even more important.

There is a significant market failure when it comes to vaccines against individual low-probability pathogens that collectively are likely to cause epidemics. Given the low probability that any single vaccine of this type will be needed, high R&D costs, and delayed returns, pharmaceutical companies hesitate to invest in their development. The profit-seeking interest does not align well with the social interest of minimizing the risk posed by these diseases in the aggregate.

Farsighted international collaboration can overcome this market failure—for example, the Coalition for Epidemic Preparedness Innovations, which is supported by the governments of Australia, Belgium, Canada, Ethiopia, India, Japan, Germany, and Norway, as well as the European Commission and various nongovernmental funders.

Its goals include advancing candidate vaccines against specific low-probability, high-severity pathogens through proof of concept to enable rapid clinical testing and scale-up in the event of outbreaks of those pathogens.

It also aims to fund development of institutional and technical platforms to speed R&D in response to outbreaks for which there are no vaccines. Similar funding models could support the development of a universal influenza vaccine.

Of course, new vaccines will be less useful if governments do not ensure that at-risk populations have access to them. Assured access could also motivate developing economies to participate actively in the vaccine R&D process.

In 2007 Indonesia withheld samples of the H5N1 influenza virus from the WHO to protest the fact that companies in wealthy countries often use samples freely provided by developing economies to produce vaccines and other countermeasures without returning any profit or other special benefits to the donors.

Beyond funding R&D, international collaboration could boost epidemic preparedness by supporting centralized stockpiling of vaccines and drugs that can be deployed where they are most needed. Such collaboration has obvious advantages over a system in which each country stockpiles its own biomedical countermeasures.

While some countries are more likely to need these countermeasures than others, the global public good of living without fear of pandemics should motivate cooperation and cost sharing.

In addition, wealthy countries at relatively low risk of suffering massive health impacts from most epidemics could suffer disproportionately large economic losses—even from faraway epidemics—given the size of their economies and reliance on foreign trade.

If outbreaks do occur and impose a substantial health burden, there are tools to limit the risk of economic catastrophe. As with natural disasters, insurance can help distribute the economic burden across sectors of the economy and regions.

Prioritizing personnel such as health care workers, members of the military, and public safety employees for distribution of biomedical countermeasures during an outbreak can help protect critical economic resources.

We cannot predict which pathogen will spur the next major epidemic, where that epidemic will originate, or how dire the consequences will be. But as long as humans and infectious pathogens coexist, outbreaks and epidemics are certain to occur and to impose significant costs.

The upside is that we can take proactive steps to manage the risk of epidemics and mitigate their impact. Concerted action now at the local, national, and multinational levels can go a long way toward protecting our collective well-being in the future.

http://www.imf.org/external/pubs/ft/fandd/2018/06/economic-risks-and-impacts-of-epidemics/bloom.htm?utm_medium=email&utm_source=govdelivery

Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.

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