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MORE AND BETTER JOBS IN SOUTH ASIA
ratio decreases, because the infant mortality rate falls before the fertility rate. The ratio subsequently rises, as the baby boom caused by the lagged decline in the fertility rate becomes part of the working-age population. The resulting rise in the share of the working-age to the nonworking-age population means that there are fewer dependents to support. The resources saved as a result—the “demographic dividend”—can be used for high-priority investments. Eventually, as the baby boom cohort ages, the demographic transition gives way to old-age dependency. Sri Lanka’s inverse dependency ratio reached its peak around 2005. Since then it has been declining, making it the only aging country in the region. Bangladesh’s ratio shows a sharp increase since the mid-1980s, catching up with India’s in 2003 (the result, among other factors, of a very rapid decline in fertility, which was supported by a reproductive health program) and exceeding it thereafter. India’s inverse dependency ratio began to increase in the 1970s. Maldives saw the fastest increase in the ratio, as a result of its plunging fertility rate. In Bhutan, the inverse dependency ratio fluctuated, rising in the mid-1970s and then falling through the mid-1990s before rising sharply again. Turning to countries with young populations, Nepal’s ratio began to rise in the 1990s. Pakistan’s ratio began a gentle climb in the 1980s. The inverse dependency ratio started increasing in Afghanistan, the region’s most youthful country, only in 2005. In the medium-fertility scenario in the United Nations’ population projections, the ratio of the working-age to the nonworkingage population in South Asia is expected to peak around 2040, except in Afghanistan, where the ratio will still be increasing, and in Sri Lanka, where it has already peaked. Thus the demographic window of opportunity will close after 2040 for most South Asian countries. Trends in each country suggest a classification into three groups: • Young countries: Afghanistan, Nepal, and Pakistan
• Potential demographic dividend countries: Bangladesh, Bhutan, India, and Maldives7 • Aging country: Sri Lanka. This classification (used later in the chapter to project the numbers of entrants into South Asia’s labor markets in the coming decades) is chosen to reflect the following considerations. First, the demographic transition is over in Sri Lanka. Second, with improved policies, Bangladesh, Bhutan, India, and Maldives, which though growing rapidly, could benefit yet more from the demographic dividend. Third, Nepal, where growth has been stagnant, and Pakistan, where growth has been volatile around a broadly declining trend, have yet to see a demographic dividend, while the demographic transition has barely begun in Afghanistan. The resources made available by a demographic dividend can be used to deepen physical capital (for example by investing in electricity or transport infrastructure) as well as human capital (by investment in education and skills training). But the realization of the dividend requires a supportive policy framework, such as a fi nancial sector that intermediates the additional savings effectively and a business environment that provides fi rms with the incentives to make high-priority investments. Without policy reform, the demographic dividend cannot be harnessed to productive ends.
Sources of future growth Looking forward, productivity growth in the region will fi rst need to rely more on factor accumulation (physical capital deepening and human capital accumulation) and less on the extraordinary growth of TFP seen in the last three decades. As the region has become more open to the global economy, it is importing better-quality capital goods and intermediate goods at world prices and using standard technology to produce goods that are sold domestically or exported in competitive world markets. Inasmuch as the technology used is widely used