Population dynamics
The size and structure of a country’s population has profound implications for its economy. Population growth is determined by the birth rate, death rate and net migration. A rising population increases the labour force but may put pressure on resources and the environment.
Demographic transition
As economies develop, they typically move through stages of the demographic transition model. Birth and death rates change as health improves and families choose to have fewer children.
| Stage | Characteristics |
|---|---|
| Stage 1 – High stationary | High birth and death rates; population growth is slow; typical of pre‑industrial societies. |
| Stage 2 – Early expanding | Death rate falls due to improvements in healthcare and sanitation; birth rate remains high; rapid population growth. |
| Stage 3 – Late expanding | Birth rate declines as families limit size; death rate continues to fall; growth slows. |
| Stage 4 – Low stationary | Low birth and death rates; population stabilises; typical of developed economies. |
| Stage 5 – Declining | Birth rate drops below death rate; population may decline and age. |
Population structure
The age distribution of a population influences dependency ratios and labour supply. A youthful population may require substantial investment in education, while an ageing population increases the burden of pensions and healthcare. Migration affects population size and composition.
Impacts of population change
- Labour supply – a larger working‑age population can boost output if jobs are available.
- Resources and environment – rapid population growth may strain food supplies, water and housing.
- Economic growth – a growing population can increase demand and potential output, but only if accompanied by investment in human and physical capital.
- Public finances – demographic changes affect government spending on education, pensions and healthcare.
Examples and applications
Japan provides an example of an ageing population. Low birth rates and long life expectancy mean that a growing share of the population is retired. This increases demand for healthcare and pensions while shrinking the workforce. Policies to encourage higher fertility and immigration are being explored.
Nigeria, by contrast, has one of the world’s fastest growing populations and a high proportion of young people. This “youth bulge” could be an opportunity if enough jobs and education are provided, but it also poses a challenge if employment and infrastructure lag behind.
Economic migrants moving from rural areas to cities or from one country to another can help balance labour shortages and reduce unemployment. For instance, migrant workers from Bangladesh and the Philippines fill service jobs in the Middle East, sending remittances back home that support family members.
