The term demographic transition refers to the transition from a society with high birth and death rates to one with low birth and death rates. All developed countries, such as the UK, have at some point been through a demographic transition, suggesting that it has beneficial effects on economic growth. However, it is hard to tell whether the demographic transition is a cause or an effect of economic growth. Possible benefits for economic growth from a demographic transition come from potential positive changes which occur to macroeconomic variable such as savings, productivity and factor prices.
The demographic transition is generally split into 4 stages: The first stage refers to a primitive pre-industrial society. In this society, technology and general health care mean that death rates are high, and due to a high infant mortality rate, women have to have more children, resulting in a correspondingly high birth rate. In this stage population growth is very slow, and society evolves in accordance with the Malthusian paradigm.
In the next stage, as the country starts to develop, technological advance lead to an improvement in the food supply, reducing the amount of deaths due to starvation and malnutrition. There are also improvements in public health, for example in sewage, hygiene and the handling of food. These help to drive the death rate further down to a relatively low level, meaning that there is now a high birth rate and a low death rate, causing very rapid population growth. In Europe this happened during the Agricultural Revolution in the 18th Century, and in England it also corresponded with the Industrial Revolution. This also causes a change in the age structure meaning that there is a young population, and so a large increase in the labour force occurs.
In stage three, there is a decline in birth rates, and the population moves towards stability. One of the reasons for the fall in the birth rate is that the fall in death rates, and so in infant mortality rates mean that there is no need to have as many children. Increased urbanisation also changes the societal view on the importance of the value of having many children, and a greater emphasis is placed on having fewer, but more highly educated and skilled children. The reason for this was that, whereas before it was thought that you would need many children to look after you in your old age, now fewer were needed as concentrating your investment on them was more beneficial due to the larger market for skilled workers. However, there is some evidence that this was not actually that significant a factor, and that the old age hypothesis was offset by the establishment of capital marketsi. For example, in England, the Poor Act of 1601 is seen by some as assistance in old age being moved from the children to the communityii. Increased female literacy and labour force participation means that more women delay or put off having children entirely in order to pursue a career. Finally, improvements in contraception, and the wider availability of it, serve to further decrease the birth rate by reducing unplanned pregnancies. An example of a country currently in this stage is India.
The final stage of the demographic transition is when both the birth and death rates are low, and the population is high and stable. An example of a country currently at this stage is the UK. An overview of the changes across all the stages in the demographic transition is displayed in Figure 1.
One of the possible benefits to the economy of the demographic transition is an increase in productivity. Lower fertility and birth rates cause a reallocation of resources from the quantity of children to their quality. This means that a greater emphasis is placed and education, causing a more highly skilled…