Growing to extinction? Balancing economic and demographic sustainability

Higher GDP is a primary driver of economic development. The World Bank and other organizations position sustainable and inclusive growth as the main factor in achieving development goals. This focus on economic growth has crucial demographic consequences.

Total fertility rates are inversely related to both per capita incomes and a country’s Human Development Index (HDI) across countries and over time.¹Richer countries typically have better healthcare systems and longer life expectancy. As a result of declining fertility rates and higher longevity, the share of old people grows with income. Although the causal effect of higher GDP on demography may be unclear, the empirical correlations are robust and stable. With rare exceptions (such as Israel and Saudi Arabia), the populations in high-income countries are declining fast. The 2023 U.N. “State of World Population” report warns that “if [population decline] continues, whole countries or even the human population itself could collapse.”

The demographic crisis of depopulation and aging is rapidly emerging as one of the major determinants of economic and social environments in many countries. And despite the plethora of potential remedies—pro-natal policies, inward migration, longer working lives, technology—no solution is in sight. For example, to maintain the current worker-to-retiree ratio, Japan needs to attract more than 44 million foreign-born migrants, or a third of its population. Alternatively, even with (probably unrealistic) pro-natal policies pushing the current total fertility rate of 1.34 to the replacement rate, the country will achieve only a modest increase in the worker-to-retiree ratio by 2050 compared to the scenario of no change in fertility rates.

The demographic crisis adds another set of constraints to development frameworks. Economic growth exacerbates the demographic shift and thus must be conditioned by population and fiscal sustainability considerations. The adverse effects of growth on fertility and aging suggest that flatter growth trajectories may be optimal when balanced against potential demographic collapse. At the very least, low and middle-income countries should incorporate demographic sustainability into their development strategies.

Transitioning to a new development paradigm could face significant institutional barriers. Demographic challenges that manifest over decades require long-term planning and investment, but political systems are biased toward visible, short-term results. Growth-oriented institutions like central banks, finance ministries, and multilateral development organizations have a clear mandate that almost universally incorporates environmental sustainability actions. No equivalent institutional framework exists for demographic sustainability.

Institutional innovation is needed to align political incentives with long-term demographic sustainability. The development community and governments should adopt age-aware growth strategies, similar, for example, to Scotland for the future program. Measures of demographic sustainability should be considered in crafting development strategies: New indicators must capture old-age dependency ratios, labor force participation dynamics, and the economic implications of evolving family structures. They should also consider intergenerational equity to ensure that current growth does not compromise the economic security of future generations. Similar to climate change initiatives, governments should conduct regular long-term demographic impact assessments that are supported by better aging-specific data, akin to the Survey of Health, Ageing and Retirement in Europe (SHARE).

Economic modeling should evolve to better reflect changes in the structure of aging populations. Modeling frameworks that balance economic growth with population sustainability must guide empirical analysis and inform policy debate. Models should also incorporate the possible negative effects of declining working-age populations and increasing dependency ratios on economic growth.

Reforms could face strong political headwinds. The upending of the political equilibrium between generations raises questions about democratic legitimacy. Aging populations increase the power of older voters, shifting preferences for policies catering to an aging majority, marginalizing younger voters, and enforcing the dominance of elderly lawmakers inside the parliament and government. Democratic systems need to adapt to unprecedented demographic changes to ensure intergenerational fairness.

This proposal is not a call for developing countries to restrain growth but a recommendation to consider long-term demographic implications when designing country economic strategies. The public good properties of environmental sustainability mean that global coordination is needed to address that challenge. In contrast, the challenge of demographic sustainability must be addressed by each country individually. The competitive nature of demographic sustainability, particularly evident in international migration patterns, suggests that every country must find its own unique optimal balance between growth and population stability.

Integrating demographic sustainability into development strategies calls for rethinking current development paradigms. Focusing on GDP growth as the primary vehicle for achieving development success becomes problematic when greater prosperity is associated with demographic decline. Addressing these challenges requires developing new metrics capturing demographic sustainability; establishing institutional frameworks that balance growth with population stability; and implementing policies that support economic, environmental, and demographic resilience. Multilateral development institutions should embrace a new approach that ensures that societies cannot just prosper but sustain themselves across generations.