07.January.2022 – World

 

Population is one of the most—if not the only—important factors that drives economic growth. The most well-known example is China, which has grown to be the second largest economy in the word since it has opened up its economy in the 1970s. A large population is a powerful asset in any economy as it can create economic demands by consuming goods and alluring investment, while providing cheap labor inputs necessary for economic development.

 

However, equally important aspect of population to consider is its structure, not just its sheer number. A disproportionately large portion of aging, old population puts great financial burdens on the young generation as they spend more than earn, thereby dragging down the economy.

 

Let’s have a look at how the proportion of young population (0 to 14), working population (15 to 64) and old population (65 and above) to the total population in some of countries in the world has changed from the 2000s to 2018.

Population ratio of the world in 2000 Population ratio of the world in 2018  

Source: World Bank

Notes: (1) Total population between the ages 0 to 14, 15 to 64, and 65 and above as a percentage of the total population.

(2) Population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship.

 

Based on this data, which country seems favorable? My take is that India and Vietnam seem to be on the bright side (they have very high ratio of young and working people), whereas most of the developed countries seem to be on their path to become old. Another salient phenomenon is how fast East Asian countries are aging (Spearheaded by Japan, and followed by China and South Korea).

 

Another important indicator to consider is birth rate. The birth rate of 2.1 children per woman is considered the rate at which a country can sustain its current population. This makes sense as two children would be needed to support their parents in a household while the extra 0.1 would account for the fact that some people die prematurely because of disease, accidents etc.

Birth rate of the world

Source: World Bank

(1) Total fertility rate represents the number of children that would be born to a woman if she were to live to the end of her childbearing years and bear children in accordance with age-specific fertility rates of the specified year.

 

On the contrary to common conception, birth rate has not changed greatly and rather decreased from 2000 to 2017. But some of the biggest drops come from countries like India, South Korea, Singapore and United States. It is notable that most of the countries are also below the natural rate of 2.1.

 

Among developed countries, France has the highest birth rate standing at 1.92 thanks to various government policies and high number of immigrants. This would imply that France has the potential to maintain its current population size, unlike most of its counterparts which may face the prospect of shrinking population.

 

One last interesting but most well-known ageing country is Japan, where population of ages 65 and above increased from 17% in 2000 to 27.6% in 2018 and the equivalent number decreased in working age population. This population change not only shows an obvious growing industry in elderly care and hospitals, but also presents other business implications and risks.

Japan's change in population structure

Source: World Bank

Notes: (1) Total population between the ages 0 to 14, 15 to 64, and 65 and above as a percentage of the total population.

(2) Population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship.

 

For example, as the owners of small and medium enterprises get older and a few number of heirs to take over, the private equity industry is seeing deal opportunities. These small and medium firms account for approximately 99% of all businesses in Japan, and employ approximately 70% of the workforce. According to the Ministry of Economy, Trade and Industry, more than 300,000 SME owners will reach the age of 70 within the next five years.

 

What do these numbers tell us? For those countries that are undergoing drastic population structure, it would be nice to pay attention to medical and elderly care sectors, and changing corporate structure stemming from succession issues.

 

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