Social Indicators Research

, Volume 142, Issue 2, pp 753–772 | Cite as

Does Demographic Transition with Human Capital Dynamics Matter for Economic Growth? A Dynamic Panel Data Approach to GMM

  • Munir Ahmad
  • Rana Ejaz Ali KhanEmail author


This study seeks to empirically investigate whether demographic transition with dynamics of human capital matters for economic growth for a representative sample of developing world. The empirical analysis based on panel of 67 developing countries, using 5-year interval data over 1960–2014, has been done by employing dynamic panel System-Generalized Method of Moments (Sys-GMM) estimator. The empirical findings suggest that demographic transition and human capital, in accordance with the theory, matter for economic growth of developing economies. The economically active population and labor force participation rate have positive contribution in economic growth. Moreover, the inclusion of human capital in level-form makes economic growth more sensitive to changes in human capital. The lag term of human capital yields insightful findings that higher the accumulation of human capital in previous time period, higher will be the economic growth in the current time period. However, the pre-requisite to achieve the benefits of this demographic transition in developing world is flexible labor markets capable to absorb the youth entering the working-age population. For market flexibility, sustained investment in human capital is required.


Demographic transition Human capital System generalized method of moments estimator Economic growth Dynamic panel 


  1. Aboubacar, B., & Xu, D. Y. (2017). The impact of health expenditure on the economic growth in Sub-Saharan Africa. Theoretical Economics Letters, 7, 615–622.CrossRefGoogle Scholar
  2. Ahmad, M., & Khan, R. E. A. (2018). Age-structure, human capital and economic growth in developing economies: Disaggregated analysis. Pakistan Journal of Commerce and Social Sciences, 12, 227–257.Google Scholar
  3. Aiyar, S., & Mody, A. (2013). The demographic dividend: Evidence from the Indian States. Indian Policy Forum, 9, 105–148.Google Scholar
  4. Ando, A., & Modigliani, F. (1963). The life-cycle hypothesis of saving: Aggregate implications and tests. American Economic Review, 53, 55–84.Google Scholar
  5. Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58, 277–297.CrossRefGoogle Scholar
  6. Arellano, M., & Bover, O. (1996). Another look at the instrumental variable estimation of error components models. Journal of Econometrics, 68, 29–51.CrossRefGoogle Scholar
  7. Barro, R. J. (1996). Determinants of economic growth: A cross-country empirical study. NBER Working Paper 5698. Cambridge, MA: Natioanl Bureau of Economic Research.Google Scholar
  8. Basu, T., Barik, D., & Arokiasamy, P. (2013). Demogrpahic determinents and economic growth in BRICS Countries. In IUSSP international population conference. Busan, Republic of Korea. 26–31 August.Google Scholar
  9. Benhabib, J., & Spiegel, M. M. (1994). The role of human capital in economic development: Evidence from aggregate cross country. Journal of Monetary Economics, 34, 143–173.CrossRefGoogle Scholar
  10. Benhabib, J., & Spiegel, M. M. (2002). Human capital and technology diffusion. FRBSF Working Paper Series 2003-02. Federal Reserve Bank of San Francisco.Google Scholar
  11. Bloom, D. E., & Canning, D. (2008). Global demogrpahic change: Dimensions and economic singnificance. Population and Development Review, 34, 17–51.Google Scholar
  12. Bloom, D. E., Canning, D., Fink, G., & Finlay, J. (2009). Fertility, female labor force participation, and the demographic dividend. Journal of Economic growth, 2, 79–101.CrossRefGoogle Scholar
  13. Bloom, D. E., Canning, D., Fink, G., & Finlay, J. E. (2012). Microeconomic foundations of the demographic dividend. PGDA Wokring Paper No.93. Program on the Global Demography of Aging. School of Public Health, Harvard University Boston, USA. Accessed 10 January 2015.
  14. Bloom, D. E., Canning, D., & Graham, B. (2003). Longevity and life cycle savings. Scandenavian Journal of Economics, 3, 319–338.CrossRefGoogle Scholar
  15. Bloom, D. E., Canning, D., & Sevilla, J. (2001). Economic growth and the demographic transition. NBER Working Paper No. 8685. Cambridge, MA: Natioanl Bureau of Economic Research.Google Scholar
  16. Bloom, D. E., & Finlay, J. E. (2009). Demographic change and economic growth in Asia. Asian Economic Policy Review, 41, 45–64.CrossRefGoogle Scholar
  17. Bloom, D. E., Humair, H., Rosenberg, L., Sevilla., J., & Trussel, J. (2013). A demographic dividend for Sub-Saharan Africa: Source, magnitude and realization. IZA, Discussion Paper No.7855. IZA Germany.Google Scholar
  18. Bloom, D. E., & Williamson, J. G. (1998). Demographic transition and economic miracles in emerging Asia. World Bank Economic Review, 12, 419–455.CrossRefGoogle Scholar
  19. Blundell, R., & Bond, S. (1999). GMM estimation with persistent panel data: An application to production functions. IFS Working Paper, 19 (4). Institute of Fiscal Studies, London, UK.Google Scholar
  20. Bongaats, J. (2009). Human population growth and the demographic transition. Philosophical Transactions of the Royal Society: Biological Sciences, 364, 2985–2990.CrossRefGoogle Scholar
  21. Cheema, D. A. (2014). Pakistan’s demographic transition: Young adults, human capital and jobs. National Human Development Report 2015. UNDP, Pakistan.Google Scholar
  22. Coale, A. J., & Hoover, E. M. (1958). Population growth and economic development in low income countries. Princeton: Princeton University Press.Google Scholar
  23. Dalgaard, C.-J., & Strulik, H. (2013). The history augmented solow model. European Economic Review, 63, 134–149.CrossRefGoogle Scholar
  24. Eggleston, K. N., & Fuchs, V. R. (2012). The new demogrpahic transition: Most gains in life expectancy now realized late in life. Journey of Economic Perspectives, 26, 137–156.CrossRefGoogle Scholar
  25. Freeman, R. B., & Bloom, D. E. (1988). Economic development and the timing and components of population growth. Journal of Policy Modeling, 10, 57–81.CrossRefGoogle Scholar
  26. Hall, R. E., & Jones, C. I. (1999). Why do some countries produce so much more output per workers than others? The Quarterly Journal of Economics, 114, 83–116.CrossRefGoogle Scholar
  27. Hirchman, A. O. (1958). The strategy of economic development. New Haven: Yale University Press.Google Scholar
  28. Jones, G., & Schneider, W. J. (2006). Intelligence, human capital and economic growth: A Bayesian averaging of classical estimates (BACE) approach. Journal of Economic Growth, 11, 71–93.CrossRefGoogle Scholar
  29. Kelley, A. C. (1988). Economic consequences of population change in the Third World. Journal of Economic Literature, 26(4), 1685–1728.Google Scholar
  30. Kelly, A. C., & Schmidt, R. M. (2005). Evolution of recent economic-demographic modeling: A synthesis. Population Economics, 18, 275–300.CrossRefGoogle Scholar
  31. Lee, R., & Mason, A. (2010). Fertility, human capital and economic growth over the demographic transition. European Journal of Population, 26, 159–182.CrossRefGoogle Scholar
  32. Mallick, L., Das, P. K., & Pradhan, K. C. (2016). Impact of education expenditure on economic growth in major Asian countries: Evidence from econometric analysis. Theoretical and applied economics, 2(607), 173–186.Google Scholar
  33. Mankiw, N. G., Romer, D., & Weil, D. N. (1992). A contribution to the empirics of economic growth. The Quarterly Journal of Economics, 107, 407–437.CrossRefGoogle Scholar
  34. Mason, A. (2001). Population policies and programs in East Asia. East-West Center Occasional Papers No.123. East-West Center, Honolulu.Google Scholar
  35. Mason, A. (2003). Population change and economic development: What have we learned from the East Asia experience? Applied Population and Policy, 1, 3–14.Google Scholar
  36. McCarthy, K. F. (2001). World population shifts: Boom or doom?. Populations Matters. Santa Monica, CA: RAND.CrossRefGoogle Scholar
  37. Navaneetham, K. (2002). Age structural transiton and economic growth: Evidence from South and Southeast Asia. Working Paper 337. Centre for Development Studies, Kerela, India. Accessed 01 January 2015.
  38. Nayab, D. (2008). Demographic dividend or demographic threat in Pakistan. Pakistan Development Review, 47, 1–26.CrossRefGoogle Scholar
  39. Nelson, R. R., & Phelps, E. S. (1966). Investment in humans, technological diffusion and economic growth. American Economic Review, 56, 69–75.Google Scholar
  40. Prettner, K., & Prskawetz, A. (2010). Demographic change in models of endogenous economic growth. A Survey. Central European Journal of Operations Research, 18, 593–608.CrossRefGoogle Scholar
  41. Rahman, R. I., & Islam, R. (2013). Female labour force participation in Bangladesh: Trends, drivers and barriers. ILO Asia-Pacifi Working Paper.Google Scholar
  42. Sarel, M. (1995). Demographic dynamics and the empirics of economic growth. Staff Papers (International Monetary Fund), 42, 398–410.CrossRefGoogle Scholar
  43. Solow, R. M. (1956). A contribution to the theory of economic growth. Quarterly Journal of Economics, 70(1), 65–94.CrossRefGoogle Scholar
  44. Song, S. (2013). Demographic changes and economic growth: Empirical evidence from Asia. Honors Projects, Paper No. 121. Accessed 09 October 2015.
  45. Valdes, A., & Foster, W. (2005). Reflections of the role of agriculture on pro-poor growth. In Prepared for the research workshop: The future of small farms, Wye, Kent. June 26–29.Google Scholar
  46. Williamsom, J. G., & Higgins, M. (1997). Asian demography and foreign capital dependence. NBER Working Paper No.5560. Cambridge, MA: Natioanl Bureau of Economic Research.Google Scholar
  47. Yashiro, N. (2013). Human capital in Japan’s demographic transitons: Implications for other Asian Countries. In W. Dobson (Ed.), Human capital formation and economic growth in Asia and the Pacific (pp. 68–73). London: Routledge.Google Scholar

Copyright information

© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of EconomicsPakistan Institute of Development Economics (PIDE)IslamabadPakistan
  2. 2.Department of EconomicsThe Islamia University of BahawalpurBahawalpurPakistan

Personalised recommendations