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  • For developing countries, having a young and growing population is both a challenge and an opportunity. Tweet This
  • Falling fertility rates can spur economic growth, but often come with new challenges. Tweet This

According to a new UN report, close to 90 percent of the 1.8 billion people between the ages of 10 and 24 in the world today live in less developed countries. Providing education, health care, and jobs to young people is hard enough for wealthy, older countries; for poorer countries with rapidly growing youth populations, it is even tougher.

Yet a growing population of young people can also prove a blessing. In brief, after fertility rates and mortality rates fall during a period of demographic transition, which many developing countries are in or could soon enter, the share of the population in the workforce rises (since more people are of working age, and lower fertility rates allow more women to work). As longevity increases, people save more money and invest some of it in education, infrastructure, and innovation. If circumstances are right, all these factors cause economic growth to accelerate. In East Asia, for instance, per capita income grew by an average of 6 percent a year between 1965 and 1995, partly thanks to the demographic transition the region was then undergoing.

To achieve this "demographic dividend," however, developing countries must first have a number of policies in place. Women must be able to control their fertility; children need health care, education, and vocational training as they grow up; and the basic infrastructure and policy environment must be conducive to economic growth—there must be reliable electricity, secure property rights, savings systems, widespread access to credit, a functioning legal system, and so on. The UN report explores these requirements in detail and documents developing countries' efforts to implement them.

But it hardly mentions the problems that can threaten countries on the other side of the demographic transition. The demographic dividend, it turns out, can be followed in short order by demographic problems if fertility rates fall too far. Here is how Philip Longman and other scholars described the change in a 2011 report:

So long as birth rates remain low, there are still comparatively few children, but the proportion of productive younger workers now begins to decline even as the ranks of risk-averse, middle-aged citizens and dependent elders explodes. Population aging goes from being a positive force for economic development and innovation to being a drain on resources.

East Asia serves again as a useful example. With a fertility rate around 1.4 and life expectancy around 84 years, Japan now faces a "demographic nightmare," usefully illustrated in this GIF at Business Insider. Its pension system is coming under strain, and as its population continues to age, its economy will likely slow down, barring major increases in worker productivity or high levels of immigration. China, which is currently enjoying the benefits of a demographic dividend, will experience Japan's problems in an even more severe form in coming decades. Singapore, where a similar story is playing out, has turned to desperate measures in an effort to raise its fertility rate above the current level of 1.2. But the problem is not confined to Asia: Italy, Germany, Spain, and other Western nations are already experiencing it, too.

The fall-out of this trend could go well beyond pension cuts and sluggish economic growth. The World Economic Forum's Global Risks 2012 report warned of "how current fiscal and demographic trends [like population aging] could reverse the gains brought by globalization and prompt the emergence of a new class of critical fragile states – formerly wealthy countries that descend into lawlessness and unrest as they become unable to meet their social and fiscal obligations."

Even assuming this worst-case scenario is unlikely to play out, low fertility rates come with serious challenges. By the time those challenges begin to emerge, however, it's difficult if not impossible to return fertility rates to a more sustainable level. Today, countries like Iran that once tried to lower their fertility rates in the name of economic growth fear that their efforts were too successful. Developing countries that incautiously follow the United Nations' recommendations risk the same painful fate.