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Reviewed by Jul 30, 2021| Updated on
Demographic dividend refers to an economy's growth resulting from a shift in the age structure of the population of a country. Usually, a decrease in fertility and mortality rates contributes to the transition in age structure.
Demographic dividends are phenomena in a world experiencing rapid economic growth as a result of decreasing levels of fertility and mortality. A country with low birth rates in conjunction with low death rates receives an economic dividend or benefits from the resulting increase in labor productivity. When fewer births are registered, the number of young dependents is growing smaller in comparison with the working population. For less people to support and more workers in the workforce, the resources of an economy are released and invested in other ways to improve the economic development of a nation and its people's future prosperity.
In order to receive a demographic dividend, a nation needs to undergo a demographic transition from a largely rural agricultural economy with high fertility and mortality rates to an urban industrial society with low fertility and mortality rates.
Fertility rates are falling in the initial stages of this transition, leading to a labor force that is temporarily growing faster than the dependent population. Everything else being equal, per capita income is also growing faster during this time. This economic benefit is a country's first dividend that has gone through the demographic transition.
Typically, the first dividend cycle lasts a long time usually five decades or more. However, the reduced birth rate eventually reduces the growth of labor force. While, advances in medicine and improved health services are contributing to an increasing elderly population, saving additional income and putting an end to the demographic dividend. Everything else being equal at this stage, per capita income is increasing at a decelerated rate, and the first demographic dividend is negative.