POPULATION, CONSUMPTION AND HUMAN DEVELOPMENT BACKGROUND PAPER FOR THE 1998 HUMAN DEVELOPMENT REpORT

3 INTRODUCTION This paper is a 'think-piece' about the relationship between demographic changes and consumption-both levels and structure-and via this on human development. The motive for focusing on demographic changes is related to recent findings that the demographic transition towards older populations, by increasing savings/income ratios and worker/child ratios, (1) speeds up economic growth [Kelley and Schmidt 1994], explaining much of the 'growth advantage' of East Asia in 1960-90 and of the potential advantage of South Asia in 1995-2025 [Bloom and Williamson 1997]; and (2) improves the rate of poverty reduction, especially via reduced fertility [Eastwood and Lipton 199-, J. Both economic growth and poverty reduction have clear implications for human development. The question we ask here is: are there similar effects from demographic changes, via consumption, on human development? Why might this happen? Demographic changes are enormous. First, rates of popUlation growth are unprecedented; for example, Asia's popUlation increased from 1.5 billion in 1950 to 3.5 billion in 1995. Second, in the demographic transition, the balance between different age groups, and hence between workers and dependants, also changes dramatically, as does household and family formation, urbanization, and many other demographic aspects. Population increase raises the consumption of food, living space, energy and much else; will this lead to rising unit costs (diminishing marginal total-factor returns), or to economies of scale? To environmental degradation, or to inventions that economise on, or discover new, natural resources? growth as such, that has such significant impact on economic growth and poverty (unless population growth leads to 'diminishing returns'). Population restructuring-which usually starts with the better-off in a country and affects the poorest last-also influences growth and poverty, and hence consumption, in many ways, e.g. as the proportion of single-person households changes. With hindsight, the importance of changing age-structure is not surprising Between 1965 and 1990, in East Asia, the number of dependants grew nine times faster than the number of workers; in Africa dependants increased faster than workers I It is unthinkable that such changes (and differences) should have no effect on levels and patterns of consumption, and hence on human development. Also, as these populations are going through 'demographic transitions', they are usually urbanising rapidly, as did the now industrialised 'Calculated from lADB 1997: 144]; figures reproduced in Table 5), by dividing the growth rate of the economically active population by that of the ecunomically dependent population. 4 countries. This is usually …