As migrants and refugees from Africa and the Middle East continue to arrive in Europe in unprecedented numbers, a new World Bank/IMF report says that large-scale migration from poor countries to richer regions of the world will be a permanent feature of the global economy for decades to come as a result of major population shifts in countries.
According to the Global Monitoring Report 2015/2016: Development Goals in an Era of Demographic Change, released in Peru at the start of the Annual Meetings of the World Bank and the IMF, the world is undergoing a major population shift that will reshape economic development for decades and, while posing challenges, offers a path to ending extreme poverty and shared prosperity if the right evidence-based policies are put in place nationally and internationally.
The share of global population that is working age has peaked at 66 percent and is now on the decline. World population growth is expected to slow to 1 percent from more than 2 percent in the 1960s. The share of the elderly is anticipated to almost double to 16 percent by 2050, while the global count of children is stabilizing at 2 billion.
The direction and pace of this global demographic transition varies dramatically from country to country, with differing implications depending on where a nation stands on the spectrum of aging and economic development. Regardless of this diversity, countries at all stages of development can harness demographic transition as a tremendous development opportunity, the report says.
“With the right set of policies, this era of demographic change can be an engine of economic growth,” said World Bank Group President Jim Yong Kim. “If countries with aging populations can create a path for refugees and migrants to participate in the economy, everyone benefits, Most of the evidence suggests that migrants will work hard and contribute more in taxes than they consume in social services.”
More than 90 percent of global poverty is concentrated in lower-income countries with young, fast-growing populations that can expect to see their working-age populations grow significantly. At the same time, more than three-quarters of global growth is generated in higher-income countries with much-lower fertility rates, fewer people of working age, and rising numbers of the elderly.
“The demographic developments analyzed in the report will pose fundamental challenges for policy-makers across the world in the years ahead,” said IMF Managing Director Christine Lagarde. “Whether it be the implications of steadily aging populations, the actions needed to benefit from a demographic dividend, the handling of migration flows—these issues will be at the center of national policy debates and of the international dialogue on how best to cooperate in handling these pressures.”
At country level, governments with young populations can maximize the benefits of demography by investing in health and education to maximize the skills and future job prospects of their youth. Those countries with aging populations should consolidate their economic gains by boosting productivity and strengthening social safety nets and other welfare systems to protect the elderly. At the global level, freer cross-border flows of trade, investment, and people can help manage demographic imbalances.
Countries can earn a first demographic dividend when a workforce grows as a share of a nation’s population, providing a powerful acceleration to growth. As changes in age structure expand production and resources, a second dividend is possible as savings build up and investment rises.
Although low-income countries can expect to see the largest growth in their working age populations, many of these countries are held back by conflict and fragility, putting these gains at risk. Sub-Saharan Africa’s high fertility and population growth will make the region home to an increasing share of the world’s children and working-age population in decades ahead, the report says.
“As heartbreaking images of families desperately fleeing conflict remind us, many migrants leave home due to conflict, instability and shrinking economic opportunities at home,” said Kaushik Basu, Senior Vice President and Chief Economist at the World Bank. “While refugees are moving to rich countries what is often overlooked is that the flows into middle and low income countries are vastly greater. Creating economic opportunities for countries with growing proportions of youth will contribute to economic stability and development and will help countries lower fertility rates, which contributes to stronger growth.”
Countries that are lagging in development and have high fertility rates are classified as pre-dividend, such as Niger. They would benefit from improving health care and education, facilitating lower fertility rates and accelerating the transition to a greater share of their populations that are working age, the report says.
Early-dividend countries that have already seen a drop in fertility but that still have young populations, such as Ethiopia, could benefit from speeding up job creation. An expanding workforce is linked to growth: an increase of 1 percentage point in the working age population can translate to a rise in the GDP per capita of as much as 2 percentage points, the report says.
In late-dividend countries where the share of the working age population is declining, such as Brazil, economic dynamism is at risk of fading. There, governments should encourage savings for productive investment, female participation in the workforce, and strengthening of social welfare systems. Post-dividend countries such as Japan, which are characterized by declining workforces and rising numbers of elderly, would do well to complete health care and pension reforms and take further steps to raise workforce participation and productivity, the report says.
“To leverage demographic change within countries, the centers of global poverty need to facilitate the demographic transition to slower population growth and accelerate job creation to absorb the swelling working-age population, ” said Philip Schellekens, the report’s lead author. “The engines of global growth need to address demographic headwinds and adapt institutions and policies to aging. In today’s interconnected world, effective policies will also arbitrage demographic change across countries. Freer flows of capital, trade and—especially—labor present tremendous opportunity to turn this era of intense demographic change into one of sustained development progress.”
In a separate section, the report details the decline of those living in global poverty, which is reclassified as living on $1.90 or less a day, to a forecast of 9.6 percent of the world’s population in 2015, a projected 200 million fewer people living in extreme poverty than in 2012.
The report notes that world economic growth in 2015 is set to disappoint, down to 3.1 percent, from 3.4 percent in 2014, on the basis of slower growth in many emerging market economies. Growth is expected to pick up to 3.6 percent in 2016, helped by strengthening recoveries in major advanced economies—led by the United States—and some turnaround from weak situations in several emerging market and developing economies.
“The global economic environment is increasingly uncertain, with growth prospects having again been marked down—feeding concerns about a more fundamental slowdown in the trend growth rate in many countries,” said Seán Nolan, Deputy Director in the IMF’s Strategy, Policy, and Review Department. “Supply-side reforms to revitalize productivity growth are essential, with the key actions required varying with country circumstances.”
The full report, including a section on monitoring global development progress, is available at www.worldbank.org/gmr. For a detailed discussion on updated poverty data, shared prosperity, and policy agendas, see “Ending Extreme Poverty and Sharing Prosperity: Progress and Policies.” World Bank Policy Research Note 15/03, available at http://www.worldbank.org/prn/twingoals