Quantifying Demographic Dividend in India and its Impact on Economic Growth : A State-Level Study

Abstract

Analyzing the impact of the age-structural changes on economic growth has gained immense attention over the recent years. The present study examined the relationship between changes in the working-age population ratio and per-capita income growth. After instrumenting growth rate of working-age population ratio with birth rate at the beginning of the previous decade, working-age population (both in level and growth form) appeared to have a positive and statistically significant impact on per-capita income growth. The log of working-age population ratio was found to be robust to the inclusion of several human capital development and other policy measures such as infant mortality rate, log of per-capita development expenditure, and per-capita scheduled commercial bank credit. Moreover, growth rate of working-age population ratio was found to be robust to inclusion of infant mortality rate and per-capita scheduled commercial bank credit. At an all-India level, the addition to the per-capita income growth due to changes in the working-age population ratio from the base year (1981) onwards was found to be gradually increasing over the decades and for the period 2000s, it turned out to be almost equal to 1%. High growth rate of working-age population ratio experienced by the BIMARU states, especially over the period 2001-2011, exhibited enormous potential of contributing to the per-capita income growth. A differential lens in policy making needs to be adopted. While states with narrow window of demographic opportunity should focus on policies that are inter-state migration friendly, states with broader window of demographic opportunity should invest more in human capital development and employment generation.