The demographic curse: Is there still a way out?

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By Richard Werner and Tapas Mishra – Ireland’s Solutions Resource.

The demographic curse: Is there still a way out?
Industrial decline in Detroit, US. (Credit: Mike Fritcher, ‘Hard Times In Detroit’/Flickr, licensed under CC BY-NC-ND 2.0, original cropped) (via:

The aim of this research paper is to re-examine long-term demographic trends and the role of policy intervention. Some authors have considered a deterioration of demographic trends (lower fertility) as inevitable as economies develop. A theoretical part of the paper discusses the crucial role of human capital in development and the negative consequences for development of a sharply declining demographic trend. The paper then applies new econometric techniques to quantitatively investigate the question of whether demographic trends should indeed be considered irreversible as economies develop. A central part of the empirical investigation analyses cases of successful government intervention that have succeeded in stopping or reversing a deteriorating demographic trend. The empirical work includes the cases of Russia and Australia, where cash payments to parents of newly-born babies have been accompanied by improved demographic trends. The final section of the paper analyses the costs and benefits of such policies, which also depend on the funding options available for such demography policy. It is found that the costs to society of such cash payments can be reduced to zero, if they are funded by the central bank through productive credit creation, while the benefits are a multiple of the nominal funds expended, with newly-born citizens on average more than able to repay such sums in tax and social welfare contributions, as well as their productive contributions to society and the economy. ‘People’s QE’ or ‘baby QE’ would be superior to conventional QE-supporting banking systems, as significant cash payments could be made to parents, likely delivering drastic reversals in demographic trends, at zero cost to society (since productive money creation is not inflationary, unlike the conventional QE, causing asset inflation). The conclusion points to the urgent need for and significant opportunities of investments in babies and education.


Demography plays a pivotal role in both the short and long-term economic development of a country. It is also of importance for government planning concerning healthcare and medical services provision. When analysing the situation of developing countries, economists have long considered a high fertility rate as growth-retarding. The United Nations Population Fund has argued that a country with declining fertility, at least when there is still a growing number of people in the workforce, “has the potential to reap a demographic dividend” (UNPF, 2016; Ssewamala, 2015). Several authors have argued that up to a third of high East Asian economic growth has been due to this demographic dividend of declining fertility, declining mortality and (still) growing working age population.[1] Such analysis, rendering high or rising fertility a ‘demographic curse’, is supported by economists and economic development advisers that focus on per capita economic growth. Many policy strategists, including from the IMF and the World Bank, have since the establishment of the Bretton Woods institutions championed a low-fertility policy. Rising income levels, education, an increasingly influential media carrying relevant content, but also policies that effectively discourage child-bearing seem to have had the desired effect: fertility in developing countries has declined. While this facilitates the reporting of higher per capita income growth, any positive effects on long-term economic growth or even healthcare provision in the long-term future are difficult to identify.

For industrialised countries, declining fertility has reached a point where the negative effects have become more tangible and appear to outweigh any temporary ‘demographic dividend’ or public relations benefit from reporting per capita growth (per capital growth is commonly only highlighted in reporting on developing countries). For these advanced economies, the demographic curse primarily consists of the prospect of demographic annihilation of indigenous populations. In May 2018, the media reported that “US fertility rates have plummeted into uncharted territory”, as the newly released US general fertility rate for 2017 showed only 60.2 babies were born for every 1000 women of childbearing age (15-44 years), a 3% drop from the previous year and the lowest such figures since records began for the US (Dockrill, 2018).  The total fertility rate (or TFR), measuring births per 1,000 women during their lifetimes, dropped to 1.76 in the US, the lowest since 1978.[2]

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The demographic curse: Is there still a way out?

Tapas Mishra

Associate Professor of Econometrics; Director, MSc Finance, Southampton Business School, University of Southampton, UK

Richard A. Werner

Linacre College, Oxford University; Convenor, Association for Research on Banking and the Economy (ARBE)

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