Impact of population aging on Asia’s future growth

Population ageing affects growth through savings, capital accumulation, labour force participation, and total factor productivity. This paper examines the impact of ageing on those four channels in 12 developing Asian economies that collectively make up the bulk of the region’s population and output.

The document points that the lag between mortality and fertility declines in Asian countries gave rise to a baby boom generation that was larger than the cohorts that preceded and followed it. However, when the baby boomers reach working age, both the savings rate and the size of the labour force will shoot up.

Conclusions contain:

• while developing Asia is following in the demographic footsteps of the advanced economies, the scale of the transition make preparing for a “grayer” future all the more challenging and complex
• it is projected that the region’s demographic transition will have a substantial adverse effect on its economic growth in the next 2 decades, particularly where population ageing is more advanced
• thus, the demographic dividend that drove economic growth in the past will turn into a demographic tax that will subtract from it

The paper underlines that a particular challenging issue will be to provide adequate income support and healthcare for the elderly without jeopardising growth by imposing excessive burdens on the working-age population.

Suggestions include:

• a primary means of sustaining economic growth in the future will be successful adaptations to rapidly changing population structures
• additionally, working longer and encouraging more women to participate in the labour force can mitigate the negative impact of ageing on growth