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...transition, fertility rates fall, leading fewer young mouths to feed. During this period, the labor force temporarily grows more rapidly than the population dependent on it, freeing up resources for investment in economic development and family welfare. Other things being equal, per capita income grows more rapidly too. That's the first dividend.

This dividend period is quite long, lasting five decades or more, but eventually lower fertility reduces the growth rate of the labor force, while continuing improvements in old-age mortality speed growth of the elderly population. Now, other things being equal, per capita income grows more slowly and the first dividend turns negative.

But a second dividend is also possible. A population concentrated at older working ages and facing an extended period of retirement has a powerful incentive to accumulate assets--unless it is confident that its needs will be provided for by families or governments. Whether these additional assets are invested domestically or abroad, national income rises.

In short, the first...

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