The Demographic Transition Model and our Economy

demographic transition modelOver the course of world history there has been a shift in the ratio of birth to death rates. This shift has significantly impacted the total population of the world and impacts the structure and economy of our nations. These shifts are best represented in the demographic transition model which graphs the shift in a series of stages that generalize the changes seen as countries develop. These changes in the ratio of birth to death throughout the life of a developing nation are significant factors in determining how our economy and capitalism work and giving insight into proposed solutions for economic strain or stagnation.

Understanding the Demographic Transition Model

The demographic transition model is split into four to five stages that countries pass through as they develop. These stages help explain the change in birth and death rates and the causes of these shifts, generally speaking. The speed at which countries can pass through these stages differ as their economy, industry, health and education and technology develop at different rates.

Stages Explained

  • Stage one of the demographic transition model is the pre-industrial society. In this situation both birth and death rates are high and nearly balance each other out resulting in a very slow growth and steady population.
  • Stage two a now developing country experiences a sharp decrease in death rates.  This is due to increased sanitation, reduced diseases and a stable food supply as agricultural practices improve. Better healthcare results in reduce mortality and proper personal hygiene techniques. During this stage the death rate declines while the birth rate remains high creating a significant increase in population.
  • Stage three of the demographic transition model brings a fall in birth rates as education increases (especially for women), contraception is accepted, and people begin making more money. Values change during this stage as children are now expected to receive an education instead of work and many families move to cities where they have fewer children in contrast to rural living environments.
  • At stage four there are low birth and death rates, sometimes even lower birth than death rates as families that once had multiple children give way to couples that may choose not to have any children. This could lead to a shrinking population which shifts the economic burden of the country to fewer people and potentially threatens an economy that is based largely on growth for stability.

Demographic Transition and the Economy

At stage one of the Demographic Transition Model the population is relatively young. People are not living long due to disease and a lack of protection against natural events. More children are present in this stage since they are also part of the daily economy as they work around the house or carry responsibilities on the family land. The economy at stage one is small, community oriented and based on basic survival. There are no entertainment or educational expenses at this level because the economy is based off of direct needs and there is limited travel or outside influence.  Few people are educated beyond what they need for survival.

By stage three the population is moving towards urbanization and rural needs are changing. Families are having less children because children are living longer and wages are increasing so there is less need for big families in order to support aging parents and grandparents. There is a shift in priorities at stage three to education and away from child labor. This can include the need of school uniforms, books, materials, fees, transportation, and time that children at stage one do not require.

The demographics of stage four happen when development has reached a level of affluence, death rates and birth rates are low and the result is an aging population instead of a young population – the opposite of stage one. As this older population ages there is a burden placed on a decreasing number of young people to sustain the economy and supply the needs of the growing elderly population.

Since the economy is a complex system of needs and provisions that shifts throughout the course of time and is influenced and controlled by many forces, understanding how the economy is influenced by population and government involvement helps define the important factors of economics in the demographic transition model. One of the examples of the demographic transition model at work is in the American social security imbalance. A program that was based off of population statistics of 150 workers for every retiree will soon operate at a two to one ratio which decreases its sustainability and hinders the success of the program.

We can explore capitalism and the crisis that was and is being experienced globally through the demographic transition model as well. Factors of globalization decreased the financial and natural resource boundaries that would have limited a crisis to a smaller contingency in the past and resulted in a great crisis and more uncertainty about the economic future for the world.

International Trade

Our world is increasingly global. In the past an economy would have been built and sustained by the limited community and family members that you could have direct and regular contact with, but today’s economy has to take into consideration the role of international trade. We have shifted from geographic limits to globalization.

What does it mean to have a global workforce and unimpeded access to products from all over the world with a touch of a button? Instead of a family producing to meet their own needs from local, raw materials, we can hop online, order just about anything we can dream up, and have it shipped across the world. There has always been an aspect of international trade as countries brought their best talents and natural resources to exchange for exotic options and novelties along business routes like the Silk Road, but as we look at today’s economy and understand the stages of development associated with the demographic transition model we see a breakdown in geographic borders that influences our economy.  Today we must understand what is it like to live in an economy without borders and what our place is in it..