Demographic Change, Brain Drain, and Human Capital: Development Potentials in Services-Driven South Asia

Biswajit Dhar Sayan Samanta

Presented at the 6th South Asia Economic Summit, 2-4 September 2013, Colombo.

Structure
South Asias Demographic Transition Services Sector led Growth and Employment Human Capital Scenario Skilled Migration and Development PotentialCritical Issues Conclusion-Demographic Dividend?

Key Characteristics of South Asian Economies

More than 55% of the incomes are generated in the services sector High rate of skilled migration from smaller countries Economic growth experiences and reasonably high future development potential Ongoing demographic change and the challenges to future development potential Increase in modern and traditional services exports Future supply of skilled labour Demographic dividend?

South Asias Demographic Transition

Similar demographic experiences (exception Afghanistan, Maldives and Sri Lanka)
Decline in IMR - average of 147.6/1000 live births in 1960s 48.3/1000 in 2011 Decline in TFR- 6.0 births per woman in 1960s 2.7 in 2011. Increase in Life Expectancy- 43.3 years in 1960 65.7 years in 2011 Decline in population growth- 1.3 per cent in 2011.

Afghanistan continues to record high IMR and TFR Maldives and Sri Lanka are at the other end of the spectrum Population in Sri Lanka is growing only at 1% per year Endogenous factors such as female health and education have fueled the pace of decline in fertility

Key Features of Population Growth in South Asia

Countries Life expectancy at birth, total (years) 2000-11 1960s 2011 46.9 67.0 64.8 63.5 74.2 65.6 64.2 73.6 0.1 32.8 48.4 38.5 45.5 40.3 40.2 49.6 59.8 0.2 48.7 68.9 67.3 65.5 76.9 68.7 65.4 74.9 0.1 Fertility rate, total (births per woman) 2000-11 1960s 2011 6.9 2.6 2.9 2.8 2.2 3.3 3.8 2.3 0.4 7.7 6.8 6.7 5.8 7.2 6.1 6.6 5.0 0.1 6.2 2.2 2.3 2.6 1.7 2.7 3.3 2.3 0.4 Mortality rate, infant (per 1,000 live births) 2000- 1960s 2011 83.5 48.5 52.8 55.3 21.7 49.6 67.3 13.3 0.6 231.5 156.6 198.1 144.4 189.9 172.1 152.7 64.5 0.4 72.7 36.7 42.0 47.2 9.2 39.0 59.2 10.5 0.8 Population growth (annual %) 2000-11 1960s 2011 3.1 1.3 2.3 1.4 1.8 1.5 1.9 0.8 0.4 2.2 3.0 2.5 2.1 2.5 1.9 2.6 2.4 0.1 2.5 1.1 1.7 1.3 1.9 1.1 1.7 1.0 0.3 Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka Standard Deviation

Changes in Composition of Working Population

Working age population is expected to increase significantly in most South Asian countries, thus resulting in steep declines in the dependency ratio In the ensuing decades, dependency ratios will be on a declining slope for all countries, except for Sri Lanka
Raises the spectre of reaping demographic dividend

Convergence in dependency ratio by 2050 (exception Afghanistan and Sri Lanka) In Sri Lanka, share of aging population is already on the increase Afghanistan will lag behind in the lowering of the dependency ratio All other countries will experience bottoming out of the dependency ratios by 2040 India, Pakistan and Sri Lanka, the dependency ratios would be bottoming out at a relatively higher level

Trends in Dependency Ratios

120.0 100.0

80.0

60.0

40.0

20.0

0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Bangladesh

Bhutan

India

Maldives

Nepal

Pakistan

South Asia

Trends in Dependency Ratios

120.0 100.0

80.0

60.0

40.0

20.0

0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Afghanistan

Sri Lanka

South Asia

Labor force participation rate, total (% of total population ages 15-64)

Countries Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka East Asia & Pacific South Asia World 1990s 50.5 75.1 64.8 62.5 52.3 87.6 51.3 60.4 79.9 62.9 70.8 2000-10 49.7 73.0 71.2 61.2 62.9 86.7 53.5 59.9 78.4 61.8 70.0 2011 50.3 73.5 73.9 57.7 68.3 86.0 55.1 59.5 77.7 59.3 69.3

Service Sector-led Growth, Employment and Human Capital in South Asia

Challenges to growth and employment in the service sector
In South Asia, services contribute 55% to the regions output, but absorb only 27% of the workforce Since the 1990s, share of services in GDP increased by 10%, but share of workforce increased by just 3% Sri Lanka - employment share of services 40% exceeds the average for South Asia Need to ensure skilled labour force to fuel the growth of modern, efficient sectors Is the education sector responding to this imperative?

Services Sector in South Asian Economies

70.0 60.0 50.0 (% of GDP) 30.0 40.0 30.0 20.0 10.0 10.0 5.0 25.0 20.0 15.0 45.0 40.0 35.0 (% of total employment)

0.0
1994 2000 2005 2010

0.0

India

Sri Lanka

South Asia

India

Sri Lanka

South Asia

Female Work Force Participation in Services

Countries Employees, services, female (% of female employment) 1990 2000 Latest available N.A. N.A. N.A. N.A. 12.1 19.4@ N.A. N.A. 28.0 N.A. 13.7 17.0 42.9 39.0 56.1 N.A. N.A. 13.3 13.5 18.1 12.9 N.A. N.A. 27.2 N.A. 13.6 17.2 Labour force, female (% of total labour force) 1990 15.2 38.8 36.4 27.5 19.4 47.5 12.7 31.5 28.0 2000 13.6 37.1 38.6 27.9 33.7 48.7 15.2 33.1 28.3 2010 15.6 39.7 41.5 25.4 41.9 50.5 20.6 32.5 27.1 Labour participation rate, female (% of female population ages 15+) 1990 2000 2010 15.5 61.7 49.6 34.8 20.2 80.0 13.4 36.3 35.8 13.4 54.3 53.5 34.3 37.4 81.9 16.0 37.2 35.0 15.5 56.9 65.5 29.0 55.1 80.3 22.4 34.6 31.7

Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka South Asia

Female Participation in Workforce

Female workforce participation remains a major concern
At 21%, South Asia is way below the global average of 40% Only Sri Lanka and Nepal exceed the global average, while Bhutan, Maldives and Bangladesh are closer to the global average India and Pakistan remain the laggards

Limited data on female employment in services.

Maldives- more than 56% in 2006 Maldives and Bangladesh almost at par with the global average (2000-2012) India has seen an increase - 17% in 2010 from 13.7% in 2000 Pakistan, low at 12.9%

Education Scenario
Countries Primary School enrollment (%) Secondary Tertiary Ratio of girls to boys in primary and secondary education (%) 2010 N.A. N.A. 7.0 17.9 N.A. N.A. 1990 N.A. 75.5 N.A. N.A. N.A. 56.7 2000 N.A. N.A. 86.1 78.8 101.5 77.0 2010 63.8 N.A. 101.6 96.3 N.A. N.A.

1990 Afghanistan Bangladesh Bhutan India Maldives Nepal 29.3 81.3 N.A. 91.2 N.A. 110.2

2000 19.5 N.A. 77.4 93.8 131.5 117.8

2010 97.1 N.A. 111.1 112.0 106.3 N.A.

1990 10.6 20.7 N.A. N.A. N.A. 32.2

2000 N.A. 48.2 40.7 45.3 52.8 35.0

2010 45.5 51.1 65.8 63.2 N.A. N.A.

1990 2.1 4.1 N.A. 5.9 N.A. 5.0

2000 N.A. 5.5 N.A. 9.4 N.A. 4.1

Pakistan
Sri Lanka South Asia Low & middle income countries

55.3
110.4 85.9 99.6

70.4
N.A. 89.5 98.9

94.9
98.8 108.4 107.1

20.9
71.9 35.3 41.4

N.A.
N.A. 43.6 53.7

34.1
100.2 58.4 66.1

3.0
N.A. 5.3 7.4

N.A.
N.A. 8.0 12.1

N.A.
15.5 15.7 22.5

49.0
102.0 67.8 83.1

N.A.
N.A. 79.5 90.5

79.6
101.6 95.0 96.7

Public spending on education, total (% of GDP)

Country Name Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka South Asia World 2000* NA 2.4 5.5 4.3 6.3 3.0 1.8 3.1 2.7 3.9 Recent# NA 2.2 4.7 3.3 7.2 4.7 2.4 2.0 2.8 4.7

*Data for Maldives and Sri Lanka are for 2002 and 1998. #Data for Bangladesh is for 2009; for Bhutan, Maldives and Sri Lanka data are for 2011; for all others, the data are for 2010

Challenges in Education
Alhough overall education outcomes show improvements over time, South Asia lags behind East Asia and the Pacific by some distance For the future growth process to be inclusive, access to quality education is essential The major challenge in this regard is to modernize the education sector and quality education delivery to future generation Lack of employment opportunities are compounded by problems of employability of the population in the working age-group

Patterns of Migration from South Asia

More than 26 million people born in South Asian countries are living outside their countries of birth.
Rate of migration is higher from smaller countries.

Rate of skilled migration is also higher from smaller countries.

Rate of skilled migration-Sri Lanka 30% and Afghanistan23.3% India and Bangladesh-4.3% skilled migration

Migration from South Asia

Destinations of migrant population
West Asia -34% OECD-24%

Skilled migrants head for the OECD countries; semiskilled largely to West Asia The Implications:
Remittances and Brain Gain High rate of skilled migration from this region contributes critically to the formation of Diaspora network Diaspora network and impact on direct service delivery

Migration from South Asia

Country Stock of Migrants as % of population Migration rate of tertiaryeducated population2000 23.3 4.3 0.6 4.3 1.2 5.3 12.6 29.7 10.2 Stock of immigrants as % of population Females as % of immigrants

Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka South Asia

8.1 3.3 6.3 0.9 0.6 3.3 2.5 9.1 1.6

0.3 0.7 5.7 0.4 1 3.2 2.3 1.7 0.7

43.6 13.9 18.5 48.7 44.7 68.2 44.7 49.8 45.6

Benefits of Migration
In 2011, foreign remittances received by South Asian countries were larger than all other major forms of inflows
Very large for Nepal and Bangladesh, 22% and 11% of GDP respectively (2011) Play an important role in narrowing the current account deficit in India Remittances may lead to income poverty reduction in the source countries but may or may not ensure better access to public services.

Remittances, FDI and ODA

Countries Afghanistan Bangladesh Bhutan India Maldives Nepal Pakistan Sri Lanka South Asia World Low & middle income Net ODA and official aid received as % of GDP 2011 2000-10 1990s 1980s 37.2 40.3 NA NA 1.3 2.1 3.8 6.5 7.8 10.5 20.2 12.5 0.2 0.2 0.5 0.7 2.1 3.4 8.3 13.3 4.7 6.0 9.4 10.0 1.7 1.7 1.9 2.8 1.0 2.4 4.4 8.4 0.7 0.8 1.2 1.6 0.2 0.2 0.2 0.3 0.7 1.0 1.3 1.4 FDI, net inflows (% of GDP) 2011 0.5 1.0 0.9 1.7 13.1 0.5 0.6 1.6 1.6 2.4 3.0 2000-10 1.9 0.9 1.5 1.8 7.2 0.2 1.9 1.5 1.8 2.8 3.4 1990s NA 0.2 NA 0.4 2.3 0.2 0.9 1.3 0.5 1.6 2.2 1980s NA NA NA 0.0 0.8 0.0 0.4 0.7 0.1 0.7 0.6 Net remittances as % of GDP 2011 NA 10.8 -4.8 3.2 -9.9 22.0 5.8 7.7 4.0 0.2 1.4 2000-10 NA 8.2 -4.1 2.9 -7.7 14.7 4.3 6.7 3.5 0.1 1.6 1990s NA 3.4 NA 1.8 -6.2 0.8 2.5 6.1 2.1 0.0 1.0 1980s NA 2.8 0.0 1.0 -1.5 0.0 7.2 5.2 1.8 0.0 0.7

Contribution of the Diaspora

Diaspora entrepreneurship
Indias experience: associations such as The Indus Entrepreneurs and Silicon Valley Indian Professional Association assisted the Indian IT entrepreneurs with business start-up

Diaspora can foster human capital accumulation in the home country in two major ways
Remittances may directly augment incomes and can therefore ease the liquidity problems of the beneficiary households Diaspora can improve the average level of education in the home country through knowledge spillovers

Key Messages
Falling dependency ratios present huge opportunities to the countries in South Asia, but can the demographic dividend be reaped? The changing composition of the GDP necessitates imparting adequate skills to the young population so that they can be considered employable by the skill-intensive service sectors Education levels of the population are still at a much lower levels relative to those in the other regions which can eventually deny the South Asian countries the benefits of demographic dividend High rate of skilled migration from the region resulted in the formation of the Diaspora network, who have contributed to the development outcomes of South Asian economies
Mismatch between the skills imparted and skill needs

Thank you