The population structure associated with a DD is a natural stage of the demographic transition, which is when countries change from having high birth and death rates to having low birth and death rates. The first stage of the transition is typically a fall in child mortality due to improvements in healthcare, nutrition and overall living standards. This causes population to grow as more and more young people survive childhood, eventually resulting in a society with a large working age population. This stage is followed by a fall in birth rates. The point after this fall, where few children are born but before the large working age population has reached retirement age, is the point at which a DD can be obtained. Beyond this point, the size of the working age population relative to dependents will decrease, as improvements in life expectancy allow people to live longer after retirement.
When a country’s labour force grows more rapidly than the people dependent on it, there is an increase in the availability of resources, at both domestic and state level, which can be invested to create a more productive economy.
For example, people with fewer children or elderly relatives to support will find themselves with more disposable income. This income can be invested in activities such as improving nutrition, pursuing education and acquiring new skills — all things which can help make people more productive. This income can also be invested in businesses, thereby helping to encourage economic growth. Similarly, having fewer nonworking people to support frees up resources for states to invest in health, education, enterprise and also other productive investments such as infrastructure.
Furthermore, because women have historically been responsible for providing care for children and elderly relatives, a low dependency ratio gives women more free time which they can use to pursue education and to participate in the labour force. Thus a low dependency ratio can also boost economic growth by allowing economies to significantly increase the size of their workforces.