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The Demographic Dividend; Evidence from the Indian States

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  • Ashoka Mody
  • Shekhar Aiyar

Abstract

Large cohorts of young adults are poised to add to the working-age population of developing economies. Despite much interest in the consequent growth dividend, the size and circumstances of the potential gains remain under-explored. This study makes progress by focusing on India, which will be the largest individual contributor to the global demographic transition ahead. It exploits the variation in the age structure of the population across Indian states to identify the demographic dividend. The main finding is that there is a large and significant growth impact of both the level and growth rate of the working age ratio. This result is robust to a variety of empirical strategies, including a correction for inter-state migration. The results imply that a substantial fraction of the growth acceleration that India has experienced since the 1980s - sometimes ascribed exclusively to economic reforms - is attributable to changes in the country’s age structure. Moreover, the demographic dividend could add about 2 percentage points per annum to India’s per capita GDP growth over the next two decades. With the future expansion of the working age ratio concentrated in some of India’s poorest states, income convergence may well speed up, a theme likely to recur on the global stage.

Suggested Citation

  • Ashoka Mody & Shekhar Aiyar, 2011. "The Demographic Dividend; Evidence from the Indian States," IMF Working Papers 11/38, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/38
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    References listed on IDEAS

    as
    1. David E. Bloom & David Canning & Pia N. Malaney, 1999. "Demographic Change and Economic Growth in Asia," CID Working Papers 15, Center for International Development at Harvard University.
    2. Bloom, David E. & Canning, David & Fink, Gunther & Finlay, Jocelyn E., 2007. "Does age structure forecast economic growth?," International Journal of Forecasting, Elsevier, vol. 23(4), pages 569-585.
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    Cited by:

    1. Rajendra P. Mamgain & Shivakar Tiwari, 2016. "Youth in India: Challenges of Employment and Employability," Working Papers id:10547, eSocialSciences.
    2. Harkat, Tahar & Driouchi, Ahmed, 2017. "Demographic Dividend & Economic Development in Arab Countries," MPRA Paper 82880, University Library of Munich, Germany.
    3. repec:ebl:ecbull:eb-17-00173 is not listed on IDEAS
    4. Shekhar Aiyar & Romain A Duval & Damien Puy & Yiqun Wu & Longmei Zhang, 2013. "Growth Slowdowns and the Middle-Income Trap," IMF Working Papers 13/71, International Monetary Fund.
    5. Patnaik, Ila & Pundit, Madhavi, 2016. "Where is India's Growth Headed?," Working Papers 16/159, National Institute of Public Finance and Policy.
    6. Ila Patnaik, 2016. "Where is India’s Growth Headed?," Working Papers id:8436, eSocialSciences.
    7. Utsav Kumar & Arvind Subramanian, 2011. "India's Growth in the 2000s: Four Facts," Working Paper Series WP11-17, Peterson Institute for International Economics.
    8. Peeters, Marga, 2011. "Demographic pressure, excess labour supply and public-private sector employment in Egypt - Modelling labour supply to analyse the response of unemployment, public finances and welfare," MPRA Paper 31101, University Library of Munich, Germany.
    9. Gunja Baranwal, 2016. "Links between foreign direct investment and human capital formation: Evidence from the manufacturing sector in India," WIDER Working Paper Series 123, World Institute for Development Economic Research (UNU-WIDER).
    10. Amjad, Rashid & Yusuf, Anam, 2014. "More and better jobs for Pakistan: Can the manufacturing sector play a greater role," MPRA Paper 59518, University Library of Munich, Germany.

    More about this item

    Keywords

    Migration; India; Demographic dividend; Indian states; age-structure; convergence; growth rate; per capita income; per capita income growth; economic growth; age distribution; Economywide Country Studies: Asia including Middle East;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts

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