NTA2020 Narayana

Global Meeting on Population and the Generational Economy, August 2020

Presentation: M.R Narayana, Inequality, Demographic Dividend and Economic Growth: Evidence From India

Abstract

This presentation offers a new explanation and prediction of empirical relationship between income and consumption inequalities and economic growth through demographic dividend in India. This analysis aims at answering the following research questions. (a) How does inequality relate to demographic dividend? (b) Will a higher inequality result in shorter and lower demographic dividend? If yes, will income inequality have a stronger effect than consumption inequality on demographic dividend? (c) Will combined effects of inequalities be stronger than individual inequality effect? (d) What do these analyses imply for policy linkages between inequality and growth through demographic dividend? To answer these questions, a NTA-based First Demographic Dividend Model is developed with inequality-adjusted Economic Support Ratio (ESR). The model is tested for India by calculating the inequality-adjusted demographic dividend (or growth rate of ESR) from 2011 to 2050. The results show that inequalities have remarkable effects on (i) lowering the distribution of labour income and consumption by age and generations and (ii) reducing the size of demographic dividend due to lesser growth rate of ESR. Income inequality effects are shown to be stronger than consumption inequality effects on reducing demographic dividend. Further, the combined effects of age structure transition (including population ageing), higher income inequality in working ages, and higher consumption inequality in older ages lead to a surprising result that India’s demographic dividend and economic growth from 2042 may be higher in the presence of inequalities than in the absence of inequalities. However, this new explanation and prediction needs further analyses in future.

File: NTA2020 Narayana

Paper: NTA2020 paper Narayana

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