# **Summary**

Russia benefited from favorable demographic changes until recently. Since the early 1990s, as in many East European countries, Russia experienced three transitions – political, economic and demographic. On the demographic front, Russia entered the transition period with a predominantly young population and a low dependency ratio, and benefited from large cohorts of people entering the labor market. However, with declining fertility rates and longer life expectancy, this has changed in recent years and the population in Russia is projected to shrink and age in the coming decades. Will this affect Russia’s longer-term growth prospects?<sup>2</sup> This paper looks at the impact of demographic trends on regional economic convergence. It asks the question: _do regions with a higher share of working-age population grow faster?_ The paper is organized as follows: first, we contrast demographic trends in Russia with those in Europe, and explore the link of demographic change and growth for Russia's regions from 1996 to 2011. Second, we investigate econometrically whether the demographic dividend<sup>3</sup> supported regional convergence over this period. Third, drawing on Rosstat<sup>4</sup> population projections, we simulate the demographic dividend. The fourth and final section draws policy conclusions.

# **Section I: Demographic and economic trends**

We look at demographic changes in Russia to inform the subsequent analysis. First, we compare demographic trends in Russia with Eastern and Western Europe drawing on UN population statistics and projections.<sup>5</sup> Second, we look at the interplay of growth and demography across Russian regions based on data from Rosstat using the national definition of age groups.

# _Russia and Europe_

We compare Russia with the 15 high-income economies of Western Europe and 21 transition economies of Eastern Europe. The UN data track populations in 5-year intervals. We find four interesting trends related to population, working age population, dependency ratios and composition of dependency ratios:

> 2 Existing evidence supports the link between growth and demographic changes. For example, the East Asian and Irish economic miracles are often attributed in part to changes in age structure. However, Bloom and Canning (2004) argue that countries benefit from favorable demographic trends only if their economies are open.

> 3 What is a demographic dividend? It refers to an opportunity that opens up when the labor force in a country grows faster than the population dependent(children and elderly) on it – and therefore leads to increases in per capita income (all else equal). As countries develop, they undergo a demographic transition where fertility rates fall. With fewer children due to declining fertility and fewer elderly people because of lower life expectancy, the largest segment of the population is of working age. This lowers the dependency ratios leading to a demographic dividend, where countries experience increases in per capita income if effective public policies are in place. Eventually, this dividend disappears as lower birth rates lead to lower growth in labor force and better health practices lead to an expanding elderly population. This saps additional income and puts to an end the demographic dividend. 4 Russia’s official statistical agency.

> 5 We use UN definitions and data to facilitate cross country comparisons. But we switch to using Rosstat data and definitions when analyzing Russian regions. Although the levels may differ slightly, the trends and structures are similar in both sources.

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