IT has often been said that a huge population with a large number of youth is an advantage to a country because this is a good source of labor and consumers.

However, two professors from the University of the Philippines refuted the claim, stressing the negative effects on the economy, especially in the household-savings rate.

Professors Dennis Mapa and Kristine Joy Briones from the University of the Philippines in Diliman said, “The high proportion of young dependents creates a negative effect in the aggregate household savings, which results in the decrease in the overall household-savings rate,” in their paper, “Population Dynamics and Elderly Saving: An Econometric Analysis,” presented at the recent National Academy of Science and Technology’s Annual Scientific Meeting.

“Achieving a slower rate of population growth should be an explicit development objective of the country; lower rates of childrearing will substantially increase the incentives for saving as experienced by other East Asian countries,” Mapa said.

Although the elderly helps in increasing the aggregate household savings in the economy, Mapa said the sector’s contribution is not sufficient to boost the overall saving rate.

“For the elderly-headed household, the number of young dependents reduces the household-savings rate,” said Mapa.

In short, the continuous growth of the country’s population, particularly the youth sector, affects the saving rate of the country since more resources are required to take care of the health and education of the newly born from childhood to adulthood.

At this point, Mapa said the country would experience a slow demographic transition, which exacerbates the low savings situation.

In their decennial study, the National Statistics Office (NSO) reported that the total Philippine population as of May 1, 2000, was 76,504,077, higher by 7,887,541, or about 10.31 percent from the 1995 census (with September 1, 1995, as reference date). The NSO said it was 10 times the Philippine population in 1903 when the first census was undertaken.

“The expansion of the Philippine population reflected a 2.36-percent average annual growth rate in the 1995 to 2000 period. This figure recorded a slight increase from a declining growth rate which started in the first half of the ’70s. The last increase recorded in population growth rates was during the period 1948 to 1960 at 3.07 percent. The recent growth rate was 0.04 percentage point higher than the annual growth during the early part of the ’90s. If the average annual growth rate continues, the population of the Philippines is expected to double in 29 years,” the report said.

Demographic transition

With a population of more than 90 million, the Philippines still cannot achieve a fast demographic transition.

Mapa said the ideal demographic transition is described as a change from high fertility and high mortality to one of low fertility and low mortality. As a country enters that stage, there are noticeable changes in the age distribution of the population.

Mapa warned that the failure of a country to go into a fast demographic transition would affect the country’s development in terms of a low household savings rate.

According to the Harrod-Domar economic development model, savings play an important role in national development as funds can be mobilized by the government for developmental projects.

There are three stages toward a demographic transition. The first phase is triggered by an initial decline in infant mortality, resulting from the ballooning of the population.

“Economic growth and savings rate are low since the young requires investment in health and education,” said Mapa.

The second stage highlights the coming of economic growth—20 years later—when the youth enters the work force resulting in savings generation, he said.

The last stage indicates continuous economic growth as the elderly cohort swells, individuals accumulate savings in their working years to serve as buffer during the retirement years.

Mapa said the theoretical framework of their paper is based on the life-cycle model of consumption, which states that people save when they are young to finance consumption during retirement.

He stressed a balanced age structure of the population is important because the “saving behavior of different cohorts may not cancel each other and aggregate saving, or dis-saving, may occur.”

Demographic dividend

With its rapid population growth rate, Mapa said the country has not benefited from the two demographic dividends.

The first dividend refers to a higher per-capita income because the economy is not constrained to allocate more resources to its population. The second dividend indicates the accumulation of savings by individuals in their working years to serve as buffer during their retirement years.

Demographic dividend refers to a social phenomenon that explains the reason for Asia’s rapid economic growth over the last decade. It is a stage where there is a “one-time burst” in the productive population that dominates the age structure and contributes significantly to the population.

According to the Harvard School of Public Health, improvements in health reduce infant mortality and receive good education, which led to the emergence of a demographic dividend.

The Philippines ranked 12th among the most populous nations in the world, a sad reality for a country where there is a high degree of poverty.

Earlier, the Commission on Population warned that the country would not reap the demographic dividend because of the rapid population growth rate. It also lamented the campaign of some sectors warning that the Philippines will lose its comparative advantage when it pursues a rational population policy.

However, rapid population growth and high fertility rates, especially among the poor, worsen the state of poverty and gives the government a harder problem to solve it.

Based on the historical population growth rates of the Philippines, many economists believe the aim of the government to reduce poverty rates from 33 percent to 20 percent by next year is not feasible.

However, it was different for Thailand and Indonesia whose growth rates were similar to the Philippines’ rate in the early 1970s. By reducing their population growth rates, Thailand (1.4 percent) and Indonesia’s (1.5 percent) poverty incidence went down to 9.8 percent and 18.2 percent, respectively, with the Philippines flying “high” at 33 percent.

The experience of Thailand indicated the importance of links between governance, population policy and poverty, stressing that a good population policy combined with good governance results in rapid economic growth and poverty reduction.