Demographic Transition, Savings, and Economic Growth in China and India

In a country, the changing age structure of its population has direct implications for economic growth. The consequences are particularly significant in large and populous countries, such as China and India. This paper examines the impact of changing population age structure on economic growth in China and India. We present various theoretical perspectives and supporting evidence to emphasise the significance of harnessing the demographic dividend for the sustenance of growth and development. The analysis informs that, unlike China, India's savings and growth potential, as well as the magnitude and timing of its first demographic dividend, is adversely affected by the slow pace of fertility decline. The autoregressive distributed lag (ARDL) model-based long-run coefficient suggests that the contribution of the reduced dependency burden to overall per capita GDP growth during the analysis period is about 2–2.5 per cent per annum for China and about 1–1.5 per cent per annum for India. China also has a significant association between dependency ratio and savings, whereas such an association is expected to emerge in India. However, this relationship is also indicative of expected adverse consequences when the dependency ratio begins to rise and population ageing gains momentum. Therefore, following China's experience, it is argued that higher domestic savings and investments during the demographic dividend phase are critical to counter the adverse impact of population ageing and to ensure growth sustainability