Does demographic dividend yield economic dividend? India, a case study

The share of working-age population changes during the process of demographic transition; the size of working age-population in India does vary across the major states over the decades, 1971-2011. Using panel data across fifteen major states for four time points, this paper examines the effects of different age cohorts of working age-population, mortality, fertility, life expectancy, investment in social sector comprising education and health and investment in physical capital (as proxy by credit deposit ratio) on growth of income measured by per capita net state domestic product. Keeping in mind the problem of endogeneity between demographic outcome and economic growth, we have formulated different econometric models and the results support the effect of conventional growth predictors like investment in human capital, credit-deposit ratio along with shares of working age population between age 30-44 and 45-59. Population growth and fertility are not found significant predictors but life expectancy and infant mortality appear to have significant effect on growth of income. The growth of the share of working population adversely affects the growth of income which re-ignites the old debate whether India is capable or not to reap the benefits of demographic dividend.