Dependency burdens in the developing world. John Bongaarts Population Council New York

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1 December 1998 Dependency burdens in the developing world John Bongaarts Population Council New York Paper prepared for Symposium on Population Change and Economic Development,

2 November 1998, Bellagio, Italy 2

3 The developing world is currently going through a period of very rapid demographic change. The best known trend is the unprecedented increase in population size, but other demographic variables are also changing at a rapid pace. Birth rates have dropped steeply in recent decades as women are having smaller families, and death rates are now a fraction of the levels that prevailed a century ago. One important consequence of these trends in fertility and mortality is a substantial and not well appreciated change in the distribution of the population by age. Broadly speaking, a population "ages" as a country moves through the demographic transition. This introductory chapter focuses on the dependency burden which is defined as the ratio of dependent young and old to the population of working age. The dependency burden varies over time and among populations in ways that have important economic and social consequences, as described in later chapters in this volume. Before turning to a discussion of demographic dimensions of dependency, I will first briefly review broad demographic trends, because they are the causes of variation in the dependency burden. COMPLETING THE DEMOGRAPHIC TRANSITION The term "demographic transition" refers to a fairly well defined pattern of change in birth, death and population growth rates that accompanies the process of development. Before the transition s onset, population growth is near zero as high death rates more or less offset the high birth rates typically found in traditional agricultural societies. Population growth is again near zero after the completion of the transition as birth and death rates both reach low levels in modern industrialized societies. During the transition period between these demographic equilibria, large increases in population occur because the death rate drops before the birth rate (see Figure 1). The demographic transition of the developing world is now about half complete. The recent period of rapid expansion of human numbers began in the late 19th century and led to an increase of 4 billion from nearly 1 billion in 1850 to 4.8 billion today. Population size is expected to grow by an additional 5 billion, approaching 10 billion in the 22 nd century, according to recent projections by the United Nations (1998) and the World Bank (1998). Over the past three 3

4 decades population size has increased by a record 2 billion, and the same increase is projected over the next 30 years, thus making the period from 1970 to 2030 the peak of the transition. The acceleration of population growth during the 20 th century was caused primarily by a sustained reduction in mortality. Improved living standards, better nutrition, greater investments in sanitation and clean water supplies, expanded access to health services and wider application of low cost public health measures such as immunization have yielded very rapid mortality reductions, especially since World War II. By the late 1960s, the average annual death rate had dropped to 15 per 1000 population which is less than half the pre-transitional level. Together with a still largely unchanged birth rate of 40 per 1000, this yielded a growth rate of 25 per 1000 or 2.5 percent per year (see Figure 1). Since then, birth rates have declined sharply, particularly in Asia and Latin America, and the average number of births per woman has been cut in half --from six in the 1960s to three today. As a consequence, the annual population growth rate in declined to 1.8 %. Because this slowly declining growth rate is applied to a rapidly growing population base, the absolute annual increment in population size has actually continued to rise - from 64 million in the late 1960s to 76 million in the early 1990s. It is expected to remain at this level until The timing of the onset and the duration of demographic transitions differs widely from region to region and from country to country. Some African countries are still in the early transitional stages because they have experienced only modest declines in death rates and virtually no change in birth rates, but there are also a few countries, primarily in East Asia, where the transition is virtually complete. In general, the more developed a country is, the further it has progressed through the transition. Because transitions in most countries are far from complete, further growth is expected for the foreseeable future in all regions of the developing world. Table 1 summarizes key results from regional projections made by the UN. In 1995, Asia's population size of 3.3 billion represented more than two thirds of the LDC total (and more than half of the world total), and this number is expected to reach 5.3 billion by a 58% increase. Africa, with 0.58 billion inhabitants in 1995, is likely to experience by far the most rapid expansion, nearly tripling in size 4

5 by Latin America, with 0.48 billion in 1995, is the smallest of the major regions; this is expected to remain the case with a growth pattern similar to Asia s. The developing world as a whole is projected to reach 8.2 billion in This future growth expected in these projections is primarily attributable to three factors (the minor role of migration is ignored): 1) Fertility above replacement Fertility is at replacement when each generation of women exactly replaces the previous one (i.e., every newborn girl on average gives birth to one daughter over her lifetime). Replacement represents a critical threshold because it equals the fertility level that, if maintained over time, produces zero population growth. Positive or negative deviations from replacement lead in the long run to persistent population growth or decline, respectively. Currently, replacement fertility equals 2.36 births per woman (bpw) in the developing world. This level exceeds 2 because children who die before reaching the reproductive ages have to be replaced with additional births, and because the sex ratio at birth slightly exceeds one (typically 1.05 male for every female birth). Despite rapid recent declines in many countries, fertility remains well above the replacement level in all regions in the South with fertility ranging from a high of 5.3 bpw in Africa to 2.7 bpw in Asia and Latin America. This implies that fertility remains one of the key forces contributing to further population growth. The UN projections assume fertility to decline in the future, eventually stabilizing at the replacement level before Once a country has reached replacement it is assumed to remain there; this assures that population growth reaches zero at the end of the transition. 2) Declining mortality Life expectancy in the developing world has risen from an average of 40 years in 1950 to 64 years today. Latin America, which now has a life-expectancy of 70 years, has reached mortality levels similar to those in the developed world in the 1960s, and Asia is not far behind. Sub-Saharan Africa s mortality has been highest, and its current life expectancy is just 54 years. Over the next half century the UN projections assume life expectancy to continue to rise in all regions. By 2050 Asia and Latin America are both expected to have mortality conditions 5

6 similar to those in the developed world today, but Africa will continue to lag, in part because the continent is most heavily affected by the AIDS epidemic. 3)Young age structure Even if fertility could immediately be brought to the replacement level with constant mortality and zero migration, population growth would continue in developing countries. The reason for this is a young age structure, which is the result of high fertility and rapid population growth in recent decades. With a large proportion of the population under age 30, further growth over the coming decades is assured because these young people will produce more births than deaths as they build families and grow old, even if their fertility is at replacement. This age structure effect is called population momentum (Keyfitz, 1971). The contribution of each of these three demographic factors to future population growth in the developing world were estimated in a recent study (Bongaarts and Bulatao, forthcoming). It found that the momentum inherent in the current young age structure of the developing world accounted for a larger proportion of future population growth than either above replacement fertility or declining mortality. Momentum is clearly the largest component of future growth in Asia and Latin America, but not in Africa where high fertility is slightly more important. These findings provide one demonstration of the crucial role played by the changing age- structure in population dynamics. THE DEPENDENCY BURDEN The declines in fertility and mortality that occur over the course of the demographic transition are accompanied by important changes in the distribution of the population by age. Countries in the early stages of the transition have a younger age structure than countries that have reached the end of the transition. This trend over time is illustrated in Figure 2 which presents the estimated distribution by age in 1950 and 1975 and the projected distribution for 2000, 2025 and 2050 for the developing world. The proportion of the population under age 15 is expected to decline from 37.8% in 1950 to 21.0% in 2050, while the population over age 65 is projected to rise from 3.9% to 13.8% over the same period. The age-distribution changed 6

7 relatively little between 1950 and 1975 despite a rapid decline in mortality during this period. Changes in mortality generally affect the age distribution much less than changes in fertility because mortality declines typically affect all ages, while fertility declines affect the number of new entrants into the population pyramid at age 0. The most widely used indicator of the dependency burden is the age dependency ratio (ADR) (Shryock and Siegel, 1973). The ADR of a population at a given point in time is defined as the ratio of the population in the ages below 15 (P 15 )and over 65 (P 65 ) to the population between ages 15 and 65 (P ): ADR=(P 15 +P 65 )/P This ratio aims to measure how many dependents there are for each person in the "working" age groups. Obviously, not every person below 15 and over 65 is a dependent and not every person between ages 15 and 65 is at work, but despite the crudeness of this indicator it is the most common measure used to document broad trends in the age composition and dependency burden. Over the course of a demographic transition the ADR shows a characteristic pattern of change. Figure 3 presents this pattern as estimated from 1950 to 1995 and projected from 1995 to 2050 for the developing world. Early in the transition the ADR typically first rises slightly as more births survive infancy. Next, the ADR falls sharply as the decline in fertility reduces the proportion of the population under age 15. Finally, at the end of the transition the ADR increases again as the proportion of the population over age 65 rises. These changes are clearly reflected in the corresponding trends in the child dependency ratio (P 15 /P ) and the old age dependency ratio (P 65 /P ) which are also plotted in Figure 3. It should be noted that the age dependency ratio is highly sensitive to the ages that mark the end of dependency for the young and the return to dependency among the old. Table 2 presents estimates of the ADR for different assumptions about these ages. The conventional ADR is projected to reach 0.53 in 2050 in the developing world, but if the working age groups are assumed to be then the ADR reaches 0.9 and if is then the ADR reaches 1.5. The latter estimate implies a dependency burden that is nearly three times as large as the conventional one. The reason for this high sensitivity of the ADR to variations in the ages at the 7

8 beginning and end of the working ages is that any change in these ages affects both the numerator and the denominator of the ADR and these effects reinforce each other. Figure 4 gives past and projected future trends in ADR by region. The broad patterns over time are similar to those for the developing world as a whole: an initial small increase, followed by a period of several decades during which the dependency burden declines substantially, and finally an up-turn as the transition ends. However, the different regions are at very different stages of their transitions and these patterns are therefore not synchronous. Africa is still relatively early in its transition and its dependency burden remains high, although it is expected to decline steadily and substantially over the next several decades. Asia and Latin America entered their transitions earlier than Africa and these regions already have experienced about a quarter century of declines in their dependency burdens. This trend will continue into the early part of the next century before leveling off and eventually turning up again. There are important differences in these patterns among sub-regions and countries; for example, East Asia entered the fertility transition earlier than South Asia. The ADR for the developed world is included in Figure 4 for comparison. It has been lower than in any region of the developing world for the past several decades, but is expected to turn sharply upward early in the next century due to an increase in the proportion of the population over age 65. The upturn in the dependency at the end of the transition is primarily the consequence of a rise in the old-age dependency ratio (OADR). As shown in Figure 3, the OADR of the developing world has been a small part of the overall dependency burden in the past and it has been relatively stable over time. Figure 5 plots the OADRs for regions and confirms this pattern at the regional level. It also demonstrates that the OADR of all LDC regions is small relative to that of the developed world. In Asia and Latin America old- age dependency is expected to turn upward after 2010, but even then it will remain well below the level in the developed world. The OADR of Africa is not projected to turn up until about

9 As already noted, the downturn in the dependency burden in the middle of the transition is related to the decline in the level of fertility. This is to be expected because the population under age 15 at a particular point in time consists of the survivors of births that have occurred over the preceding 15 years. The relationship between the ADR and the total fertility rate for the preceding 15 years in S. Korea is plotted in Figure 6. As was the case for a number of other East-Asian countries S. Korea experienced an extremely rapid fertility decline between 1965 and 1990 and the decline in the ADR has been equally rapid. The tight link between fertility and the ADR in this country is evident in Figure 6 and similar relationships exist in other countries. This conclusion is confirmed by the very high correlation (0.97) between the ADR of countries in 1995 and the average total fertility rate for the period (Figure 7). CONCLUSION The demographic transition is accompanied by fairly predictable declines, first in mortality and, after a delay, also in fertility. These well established trends have less well known consequences for the distribution of the population by age and for the dependency burden. The agedependency ratio varies widely over the course of the transition but this pattern is quite predictable. Following a modest initial rise the dependency ratio typically experiences a prolonged period of decline during the central part of the transition. The preceding analysis has documented that this decline in dependency is very closely tied to the decline in fertility. Variations in the dependency burden among contemporary developing countries are almost entirely explained by variations in recent fertility. Similarly, the timing, duration and magnitude of the decline in the dependency rate in mid-transitional societies are largely determined by the timing, duration and magnitude of the fertility declines. 9

10 50 45 Figure 1: The Demographic Transition in the Developing World, Estimates and projections Birth Rate 40 Rate per 1000 population Death Rate Growth Rate Year Source: UN1996, author's estimates 10

11 Figure 2: Population by Age in the Developing World Age Population (in millions) Source: UN

12 Figure 3: Age Dependency Ratio for the Developing World Ratio Old age dep. ratio 0.2 Child dep. ratio Year Source: UN

13 Figure 4: Age Dependency Ratio by Region Asia L. America 1995 Africa 0.6 Ratio Developed world Year Source: UN

14 Figure 5: Old-age Dependency Ratio by Region Developed world 0.3 Ratio L. America 0.2 Asia 0.1 Africa Year Source: UN

15 Figure 6: Age dependency ratio and total fertility rate (preceding 15 years) for S.Korea Ratio Total fertility rate (15 yr ave) Births per woman Age dependency rate Source: UN

16 Figure 7: Age Dependency Ratio in 1995 by Total Fertility Rate for 184 Countries 1.2 R 2 = Ratio Births per woman Source: UN

17 Table 1 Total population estimates ( ) and projections ( ), by region Population (billions) Africa Asia a Latin America Developing world a excluding Japan, Australia and New Zealand, but including Oceania Source: United Nations (1996) 17

18 Table 2: Age dependency ratio for the developing world in 2050 by age at onset of old age dependence and age at end of child dependence. Age at onset of old-age dependence Age at end of child dependence

19 References Bongaarts, John and Rodolfo. Bulatao (forthcoming). Completing the demographic transition. Manuscript. Keyfitz, Nathan, On the momentum of population growth, Demography, 8 (1) Shryock, Henry S. and Jacob S. Siegel, The methods and materials of demography. Washington: US Dept. of Commerce, Bureau of the Census, United Nations World Population Prospects : The 1996 revision. Annex I: Demographic indicators. United Nations Department for Economic and Social information and Policy Analysis, Population Division, New York. United Nations, Population Division,1998, World Population Projections to 2150, United Nations Department for Economic and Social information and Policy Analysis Population Division, United Nations, New York. World Bank, 1998, World Development Indicators 1998, World Bank,Washington D.C.. 19

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