will bangladesh seize or squander economic opportunity offered by demographic dividend?

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[Pls. do not quote without author’s permission] Will Bangladesh seize or squander economic opportunity offered by demographic dividend? Rafiqul Huda Chaudhury

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Page 1: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

[Pls. do not quote without author’s permission] Will Bangladesh seize or squander economic opportunity offered by

demographic dividend?

Rafiqul Huda Chaudhury

Page 2: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

1.0 Introduction

• The paper examines the implications of age structural transition, associated with fertility and mortality decline, on economic growth.

• The effect of age-structural transition on economic growth is expected to be transitional.

Page 3: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• The effect would be sizeable in the short and medium terms when decline in fertility produces a period during which working age population grows more rapidly relative to the younger and older dependants (i.e., there are more workers per dependant).

• However, this effect would be negligible or negative when both fertility and mortality reach it’s lowest and fewer people enter productive ages and the old age population rises both in number and proportion.

Page 4: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• There is a considerable time lag between decline in child dependency ratio and increase in the working aged population on one hand and the rise in old aged population on the other.

• This time lag creates one time opportunity for about two to five decades to boost living standards of the population.

• Bangladesh experienced a dramatic decline in fertility and mortality during last four decades. Children per woman declined by 63.5% to 2.3 in 2010 during 1970-2010. During the same period contraceptive prevalence rate has increased by 695 % to 61.2 percent in 2011 in 2010 (See Figure 1).

Page 5: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• During 1970-2010 mortality has also declined significantly. Infant mortality rate and under-five mortality declined by at least 74% to 38 and 78.7% to 47 in 2010 per 1000 live births respectively, while maternal mortality ratio declined by 63 % to 240 per 100000 live births in 2010 (see Figure 2).

• During the same period life expectancy at birth increased by 33.6% to 70.2 years in 2010 ( see Figure 2).

• This has produced a huge shift in age- structure of the population, with more population in working ages than in dependent ages. Dependents per 100 working population declined from over 100 in 1961 to 60 in 2010. This has created a window of economic opportunity ( see Figure 3 and Table 1).

Page 6: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Figure 1: Trends in Total fertility and contraceptive prevalence rates in Bangladesh (1975-2011)1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

0

1

2

3

4

5

6

7

8

0

10

20

30

40

50

60

70

7.7

30.8

39.944.6

49.253.8

58.1

55.8

61.2

6.3

5.1

4.3

3.4 3.3 3.33

2.7

2.3

TFR CPR

Tota

l Fer

tility

Rat

e(Ch

ildre

n Pe

r Wom

en)

Cont

race

ptive

Pre

vale

nce

Rate

Source- Bangladesh Demographic and Health Survey-2011

Page 7: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Figure 2: Life Expectancy at Birth and Various Other Mortality Rates in Bangladesh (1970-2010)

1970 1975 1980 1985 1990 1995 2000 2005 20100

100

200

300

400

500

600

700

0

10

20

30

40

50

60

70

80

46.648.2

54.2

56.9 59.7

62.765.6

68 70.2

220.6 217197.8 173.3

144114

88 6847

147 145 133117

100 81 64 51 38

650

560 570

500

340

300

240

MMR IMR U5MR Life expectancy at birth

Mor

talit

y Ra

te

Life

Expe

ctan

cy a

t Birt

h

Source: Lancet

Page 8: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

a. ESCAP- Population of Bangladesh-1981b. BBS-Population Census-1991c. BBS- Bangladesh population census-2001 d. BBS- Bangladesh Population Census-201 * BBS projection

Figure 3: Percentage of population by age groups (BBS)

19.4

60.4

42.146 48 46.5 45.1

39

34.624.6

23.420.6

53.548.8 46.3 47.4

49.454.7

57.9

67.2 65 64

4.4 5.2 5.7 6.1 5.4 6.2 7.5

8.211.6

15.4 20.2

0

10

20

30

40

50

60

70

80

Year

Pe

rce

nta

ge

0-14

15-59

60+

Page 9: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• Table 1. Population by major age group: Bangladesh• • Age-group 1951(a) 1961(a) 1974(a) 1981(a) 1991(b) 2001(c) 2010(d) 2020(d) 2030(d) 2040(d) 2050 (d) • • in thousand• 0-14 17654 23386 34310 40510 47998 48570 46544 42545 39113 34375 30665 • • 15-59 22433 24810 33095 41294 52614 68055 92268 11323 121036 124774 120106• • 60+ 1845 2644 4074 5314 5703 7729 9881 1338 1714 31784 43582 • • All ages 41932 50840 71479 87118 106315 124354 148692 167256 181863 190934 194353 • • in percent• 0-14 42.1 46.0 48.0 46.5 45.1 39.0 31.3 25.4 21.5 18.0 15.8

• • 15-59 53.5 48.8 46.3 47.4 49.4 54.7 62.1 66.6 66.6 65.3 61.8• • 60+ 4.4 5.2 5.7 6.1 5.4 6.2 6.6 8.0 11.9 16.6 22.4• • Growth Rate• 1951-1961 1961-1974 1974-1981 1981-1991 1991-2001 2001-2010 2010-2020 2020-2030 2030-2040 2040-2050• • 0-14 2.81 2.94 2.37 1.69 0 .12 -0.47 -0.90 -0.84 -1.29 -1.14

• • 15-59 1.00 2.21 3.16 2.42 2.57 3.38 1.88 0.84 0.30 -0.38

• • 60+ 3.68 3.32 2.82 1.99 3.03 2.73 3.04 4.83 3.81 3.16

• • All ages 1.93 2.62 2.83 1.99 1.57 1.98 1.18 0.84 0.49 0.18 • • Source: a. ESCAP- Population of Bangladesh-1981• b. BBS-Population census-1991• c. BBS- Bangladesh population census-2001• d. UN-World Population prospects, The 2010 revision• • •

Page 10: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Figure 4: Trends in growth rate of working age population (15-59) and the growth rate of dependent population (0-14 & 60 Years), 1951-61- 2040-50

1951-1961 1961-1974 1974-1981 1981-1991 1991-2001 2001-2011 2011-2020 2020-2030 2030-2040 2040-2050

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

2.892.99

2.53

1.59

0.47

0.750000000000001

-0.91

0.8400000000000010.840000000000001

1.161

2.21

3.16

2.422.57

2.02

2.89

0.840000000000001

0.3

-0.380000000000001

Less than 15 & 60+ 15-59

Source: a. ESCAP- Population of Bangladesh-1981 b. BBS-Population census-1991 c. BBS- Bangladesh population census-2001 d. UN-World Population prospects, The 2010 revision e. BBS- Bangladesh Population and Housing Census-2011

Page 11: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Figure 5: Dependency Ratio

0

10

20

30

40

50

60

70

80

90

100

110

120

Year

Per

cen

tag

e

Young

Old

Total

Page 12: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

2.0 Linkages between Demographic Dividend and Economic Growth

• Demographic dividend helps improving living standards of the population through: increased

• (i) capital formulation, • (ii) savings and investment, • (iii) female participation in labor force, • (iv) improved quality of labor force,• (v) slowing unsustainable fractionalizing of holding &

releasing pressure of absorbing growing labor force on limited agricultural land and

• (vi) increased demand of goods & services.

Page 13: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• The period of window of opportunity can be characterized as (i) more workers producing more total output if they are productivity employed, (ii) greater accumulation of wealth, if savings occur and more productively invested, and (iii) a large supply of quality human capital, if appropriate investments are made in its formation .

Page 14: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• The underlying message that emanates from the above preconditions clearly points out to the fact that demographic bonus can contribute to economic growth, if congenial environment is created through appropriate policy regimes to capitalize on it.

Page 15: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• The era of window of opportunity is likely to be followed by a period of economic stagnation,

• This was found in many West European countries, such as Germany and Italy, due to rise in elderly population, both in terms of number and proportion, and fall in working aged population.

• The economic gift evaporates as the elderly share in the total population rises.

Page 16: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

3.0 Capitalizing on Demographic Dividend: Lessons Learnt from East Asia.

• Although economy of many countries benefited from Demographic Dividend, this benefit was the largest for the following East Asian countries: Japan, South Korea, Indonesia, Singapore, Thailand and the Province of Taiwan, even compared with the rest of the world.

• The countries of East Asia were the first outside the west to complete the transition from high to low fertility. It calls for closer examination of East Asian experience in capitalizing on Demographic Dividend, as this will be very instructive for other countries to follow.

Page 17: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• East Asian countries experienced a spectacular decline in fertility and mortality during the last three decades (1960-90).

• Total fertility rate of many East Asian countries (Japan, South Korea, Indonesia, Singapore, Thailand and the province of Taiwan) declined from 6.7 to 6.4 children per woman in 1960, to replacement level fertility and below in 1990s.

• Total fertility rate of Bangladesh declined from about 7 children per woman in 1970 to about replacement level of 2.3 in 2011- two decades later than East Asian countries.

Page 18: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• Regarding mortality transition, life expectancy at birth of these countries increased dramatically over 10-15 years to 63-76 years during the last three decades (1960-90). In Bangladesh Life expectancy at birth has increased over 40 years to 67 years in last four decades

• This dramatic demographic transition resulted in huge shift in age-structure, characterized by decline in share of young aged population and rise in share of the working aged population.

Page 19: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• Working aged population grew by 2.4 percent per year, compared to 1.6 percent for the entire population during 1960-90. A similar pattern is also observed for Bangladesh during 1981-2001 and this is expected to continue until 2011.

• This age-structural transition created window of opportunity for economic growth as seen in extraordinary economic growth overlapping demographic transition.

Page 20: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• One percent increase in the growth of working age population was associated with 1.46 percent increase in the growth of GDP per capita.

• Bangladesh data also shows positive association between increase in growth of working age population and growth of GDP per capita (See Graph 6)

• Age-structural transition accounted for one-third to one-fourth of East Asian’s average growth per capita income during 1970-90 .

Page 21: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

4.0 How did East Asian Countries Capitalize on the Demographic Dividend• Quality human resource base• High rates of savings and investment• Successful employment growth rate• Open economy and favourable investment• Quality public institutions• Increase in female participation in labour force.

Page 22: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Chart 1: Quality of Human Capital

• East Asia

% Year

72-90% 1985

20% 1960

Bangladesh

Year

20.33 1990

High

% Year

53.4% 2011

13.4% 2001

Year

44 2010

Suspect

Mortality Year

Life expectancy at birth increased over 40 years to 67 in last four decades.

(1960-2010)

Level of Education

•Literacy Rate

•Secondary Education

Quality of Education

•Pupil-Teacher Ratio(Primary Level)

•Overall Quality

Mortality Year

Life expectancy at birth increased over 10-15 years to 63-76 during last three decades.

(1960-1990)

Mortality

Life Expectancy

East Asia

Page 23: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

4.1 Quality Human Resource Base

• East Asian countries started with high quality human resource base characterized by high level of literacy, emphasis on primary and secondary education, quality education and low level of mortality, an index of good health and quality of life.

Page 24: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Good health and quality human capital had several advantages:

• A healthier and more productive labour force• High quality human capital also helped East Asian

countries attracting foreign investment and adopting superior technology imported from developed countries.

• This has also helped boosting production and labour productivity.

Page 25: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

FDI in Bangladesh• East Asia has successfully attracted foreign investment.• Bangladesh score card on attracting FDI is still far from

satisfactory, although some progress is made. “so far, FDI attraction has been dismal even by the standards of least –developed countries” (UNCTAD, 2013).

• Inward FDI volumes in relation to population and ratio of GDP, were consistently 80 percent less than the average for all LDCs and 50% below the inflows to other populous low-income countries such as India and Indonesia.

Page 26: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

4.2 High Rate of Savings and Increase in Capital Formulation and Investment

• Changes in age-structure produced a very large swing in savings in East Asian countries and saving rate reached its historical proportion.

• Domestic saving rates increased from near zero in 1950s and 1960s to very high level (40-60% of GDP) during 1960-1970s.

• Savings/income ratio increased by double from 4.0 percent in pre-transition to 8.3 percent in post-transition. Decline in child dependency ratio accounted for 13.6 percentage points of the total rise in savings.

• Increase in the rate of savings led to a corresponding increase in capital and rise in labor productivity and economic growth

Page 27: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• Changes in age-structure also has had boosting effect on savings in Bangladesh but way below than that of the level achieved by East Asian countries.

• In Bangladesh domestic savings as percentage of GDP stood at 20.31% in 2007-08, which is 49% to 66% lower than that was achieved by East Asian countries in 1960-70.

• National savings as percentage of GDP rose from 20% in 1995-96 to 30.2% in 2007-08.

• Increase in the rate of savings led to a corresponding increase, albeit modestly, in capital and rise in labor productivity and economic growth

Page 28: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

4.3 Increase in capital per worker

• Annual growth rate in capital per worker from 1965 to circa 1990 ranged from lowest 6.6 percent in Taiwan to highest 8.7 percent in Thailand, compared to 2.7 percent in the USA during the comparable period.

• Higher savings and capital per worker contributed to high level of income by financing higher investment and boosting higher productivity per worker. High quality human capital base has also contributed to higher labour productivity.

• Increased savings and capital not only helped these countries to finance its own economic development but also economic development of many other developing countries in the region.

• East Asian countries evolved from foreign capital dependence to independence between 1965 and 1990. This can be also explained by evolution from high youth dependency to low.

Page 29: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Prudent Macro Economic Policy

• The most important of which was “Open Market Policy”. East Asian countries could be adjudged as highly open .

• Foreign and local investments were also attracted by quality public institutions of East Asian countries.

• “ Open market policy” is also pursued by Government of Bangladesh but it needs further rationalization.

Page 30: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Agricultural Research

• East Asian countries had also excelled in agricultural research that had contributed to boosting agricultural productivity enormously and enabled these countries to feed larger populations with fewer farmers.

• Bangladesh has also done remarkably well in agricultural research and contributed significantly to agricultural productivity

Page 31: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Gender gap in education and wage

• Gender gap in education, labour force participation and wage differentials reduced significantly since 1960 and women now constitute a huge proportion of the labor force in these countries .

• East Asian countries by removing many gender disparities and providing women opportunity to participate in labour force in increasing numbers effectively capitalized demographic dividend.

• Bangladesh has also removed many gender disparities in education and other fields(see figure 7)

Page 32: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

4.4 Rapid Growth in Employment

• Between 1960 and 1990, labour force increased by 2.7 percent per annum compared to 1.9 percent population growth.

• Increased savings and capital per worker helped these countries to absorb the growing labour force and maintain growth in labour productivity by investing in health, education and creation of new jobs in manufacturing and service sectors.

• These countries could also successfully attract foreign capital to expand manufacturing capacity to absorb the growing labour force.

Page 33: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• Between 1981 and 2011, labour force in Bangladesh increased by 2.42 to 2.02 percent per annum compared to 1.99 to 1.47 percent population growth.

• This increase in working age population and dramatic decline in dependency ratio contributed to rise of GDP per capita, GDP/savings ratio , greater investment in education (e.g. capital formulation) and huge reduction in poverty, see figure 6, 7, 8 & 9)

Page 34: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Figure 6: Trends in GDP, Savings, Poverty Rate and Working Age Population in Bangladesh, 1995/96-2010/2011

1995-96 2000-2001 2005-06 2010-110

10

20

30

40

50

60

70

4.62 5.27 6.63

6.71

14.918

20.2519.29

20.17

22.41

27.67

28.78

50.148.9

4031.2

53.956.6

59.362.1

GDP

Domestic savings as percentage of GDP

National savings as percentage of GDP

Poverty rate

Working age Population(15-59)

Source: GDP- National wings, BBS Poverty rate- The Millennium Development Goals, Bangladesh Progress Report-2008 Savings- Statistical Pocketbook Bangladesh-2012 Working age population-World Population Prospects 2010-UN

Page 35: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Figure7: Literacy Rate of Persons for 7 Years and Over by Sex, 1961-2011

25.5

56.1

58.859.4

50.3

38.933.836.6

31.4

53.452.7

41.8

17.516.410.7

56.1

46.2

32.4

2626.8

21.5

0

10

20

30

40

50

60

70

1961(a) 1974(a) 1981(a) 1991(a) 2001(a) 2007(b) 2011(c )

MaleFemaleTotal

Perc

enta

ge

Year

Sources: a. BBS- Population Census-2001. b. BBS- Statistical Pocket Book Bangladesh-2010. c. BBS-Bangladesh Population and Housing Census-2011

Page 36: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Figure 8: Trends in Total Fertility Rate and Female Literacy, 1981-2011

0

10

20

30

40

50

60

1981 1991 2001 2002 2003 2004 2005 2006 2011

TFR

FemaleLiteracy

Sources: i) BBS- Statistical Yearbook of Bangladesh, 2008. ii) BBS-Population Census, 2001. iii) BBS- Bangladesh Population and Housing Census-2011

Page 37: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

Figure 9: Labor Force Participation (Refined Activity Rate), Bangladesh 1981 to 2010

9.9

36

82.5

86.887.4

8478.379.6

79.6

81.478.2

29.226.1

23.9

50.658.2

85.3

5.1

0

10

20

30

40

50

60

70

80

90

100

1981 1985-86 1989 1990-91 1995-96 1999-00 2002-03 2005-06 2010

Total

Male

Female

Sources: a. BBS- Statistical Pocket Book 2010. b. BBS- Statistical Pocket Book-2009 c. BBS- Statistical Pocket Book-1999 d. BBS- Statistical Year Book- 1998

Page 38: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• However, this economic dividend would have been much more greater if Bangladesh could further i) improve quality of human capital, ii) create favorable climate for savings, capital accumulation and investment, iii) create more employment in productive activities, iv) ensure good governance and v) further strengthen open market policy.

Page 39: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• Bangladesh faces a herculean task of absorbing rising working age population. This will increase by 1.13 to 1.53 million per annum between 1991-2011 and further increasing to 3.10 million per year during 2011-2020 over and above the current backlog.

• A greater proportion of the increased labour force is absorbed in low productive jobs (e.g in informal sector) although modest increase is also seen in manufacturing and service sectors from 4.81 % in 19.61 to 12.29% in 2010. During the same period employment in trade hotels and restaurants increased from 3.68% in 1961 to 14.68% in 2010.

Page 40: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

• To ensure greater absorption of rising labor force in productive jobs will call for creation of more jobs in this sector which will require, among other things, increased savings, greater investment in new technology and job creation, (currently investment accounts for only 24-25% of GDP, which must be raised to at least 30-35%) and attracting foreign capital to expand manufacturing capacity.

• UNCTAD identified few bottlenecks to FDI. These include: lack of coherent laws, too decentralized and complicated industrial policy; congested roads, unreliable electricity, poor transport access to remote areas; lack of access to land; corruption, weak public governance and lack of skilled manpower.

Page 41: Will Bangladesh seize or squander economic opportunity offered by demographic dividend?

5.0 What Lessons are there for Bangladesh?

• A strong human resource base• Favourable climate for savings, capital accumulation and

investment.• Creation of more jobs in the extractive industries.• Good Governance and political stability• Improved infrastructure and uninterrupted power supply• Open market policy• Quality public institutions • Elimination of gender disparity in higher education and

wage and higher level decision making.