Asia enjoyed a significant demographic dividend in the past, when the size of the working-age population surged relative to the size of the dependent population, like the elderly and children. The expansion of the workforce enabled the region to produce more output, and contributed to sustained rapid economic growth.
What enabled Asia to reap the dividend were sound policies and institutions that amplified the economic gains from favorable demographics. For example, many Asian countries had relatively flexible labor markets that allowed the productive deployment of large numbers of workers—especially in labor-intensive, export-oriented manufacturing—which laid the foundation for the region’s economic takeoff.
However, due to region-wide population aging, Asia’s demographic dividend is now coming to an end. Driven by the same social, cultural, and economic factors as in Western countries, Asia’s population aging is also marked by a decline in fertility and improvement of life expectancy. What is unique about the process in Asia, though, is its unprecedented scale and speed, especially in East Asian countries that have experienced a collapse of fertility.
So, what are the economic implications of population aging for Asia? This was the central theme of a regional conference hosted by HelpAge International in Hanoi, Viet Nam. At the meeting, there was almost unanimous consensus and widespread concern that a ‘greyer Asia’ will have adverse effects on the region’s growth. In fact, the demographic dividend is already turning into a demographic tax in many Asian countries, and the size of the dividend is projected to decline in some younger countries. For developing Asia as a whole, the contribution of demographic factors to annual per capita GDP growth is set to decline from 0.92 percentage points in 1981-2010 to 0.59 in 2011-2030.
Contribution of demographic factors to annual GDP per capita growth rate
Unit: Percentage point. Source: Park and Shin (2012).
Many participants worried that Asia’s rapid population aging can seriously undermine the region’s quest for inclusive growth. The elderly account for a large and growing share of Asia’s population, yet they are vulnerable to widespread poverty. In other words, when a large share of Asia’s elderly population fails to lead humane, decent and fulfilling lives, Asian economies and societies cannot possibly be inclusive.
However, throughout much of the region, traditional means of old-age support—mainly family-based—are eroding, while modern safety nets such as national pension systems have yet to reach the elderly. Asia’s governments spend less on social protection systems for their elderly than their counterparts in not only the advanced economies, but also in Latin America. There is thus some scope for Asian governments to invest more to prevent widespread old-age poverty, which would erode the very foundation of inclusive growth. Of course, such expansion of fiscal spending cannot impair fiscal sustainability.
Share of education, health care, and social protection in GDP in 2010
Source: ADB estimates based on data from World Bank.
HelpAge organized on the sidelines of the conference a field visit so we could learn more about the problem of active aging and become aware of the human dimension of Asia’s changing demographics.
While population aging will clearly have effects on GDP growth rates, government budgets and other key indicators, let’s not forget that hundreds of millions of human lives are at stake. Many of us have old parents and all of us will become old one day, so taking a distant, it-is-other-people’s-problem is a mistake. By helping to create a social, economic and cultural environment in which the elderly can be integral members of society and lead rich, productive and fulfilling lives, we not only help our parents and the parents of others, but ultimately ourselves.
When we visited a local elderly community club and met its members, what struck me the most was their active involvement and genuine enthusiasm for instance when debating the pros and cons of raising frogs to sell as food for additional income. I was also impressed by the example of some of the younger elderly, who volunteered to take care of very old and frail. The club fostered a sense of community and belonging among its members.
There was almost universal consensus among the conference participants that Asia’s population aging poses a tough challenge for economic growth, fiscal sustainability, and old-age support. But there was also fairly widespread optimism that Asia can tackle its demographic challenge as it was able to capitalize on more favorable demographics in earlier decades, through sound policies and institutions. Older population structures thus present not only new challenges, but also new opportunities, so there is no cause for undue pessimism.
However, as Asia navigates its demographic transition, it must never lose sight of one key fact. In the final analysis, what is at stake is not just GDP, fiscal balance and other numbers and figures, but the quality, decency and humaneness of the lives of millions of Asians – our parents, others’ parents, and our own future selves. Our visit to the elderly community club was a vivid reminder that the elderly too have dreams, hopes, and aspirations, just like the rest of us. Therefore, in addressing the region’s demographic transition, Asia’s governments, families, civil societies, NGOs, and private sectors must make concerted efforts to help the elderly realize their dreams, hopes, and aspirations. For example, if Asia were to sustain rapid economic growth while its elderly suffered widespread poverty, it cannot possibly claim to be aging well. In short, the human dimension is the key to a greyer but richer and happier Asia.