ECON3320 AsiaPacific Economies
Demographic Transition, Aging
Population and
Economic Growth
Demographic Transition
and Economic Miracles
in Asia
Bloom, David E., and Jeffrey G. Williamson.
"Demographic transitions and economic
miracles in emerging Asia." The World Bank
Economic Review 12.3 (1998): 419-455.
2
Demographic
Transition
3
4
• The demographic transition describes the
change from preindustrial high fertility and
mortality to postindustrial low fertility and
mortality.
• The demographic transition must be
accompanied by a cycle in population growth
and in the age structure.
• The crude birth rate fell much
more rapidly in East Asia than in
Southeast or South Asia, the timing
was not so different.
• In most countries, like Korea,
Malaysia, and Singapore, fertility
began to decline about 15 years
after the drop in child mortality.
• In other countries, like Thailand,
the delay was closer to 25 years.
5
• The ratio of workingage population (those
age between 15 and
64) to nonworking- age
population has been
rising in Asia since
1970, but this increase
was especially dramatic
in East Asia between
1975 and 1990.
http://unstats.un.org/unsd/methods/m49/m49regin.htm
7
Three phases of demographic transition in Asia
• Throughout the 1950s and 1960s, the dominant trend was a large increase
in the number of children.
8
• The second phase emerged in the 1970s, when the increase in
the number of people of working age exceeded the increase in
the number of young people in a growing number of countries.
9
• According to the projection, the change in the 60 and older
population will dominate changes in other age groups in 34
countries.
10
Demographic Transition and Economic Growth
11
• In the early stages of the
demographic transition, rising youth
dependency burdens and falling
shares of working-age adults diminish
the growth of per capita income.
• As the transition proceeds, falling
youth dependency burdens and rising
shares of working-age adults
promote the growth of per capita
income.
• The early burden of having few
workers and savers becomes a
potential gift: a disproportionately
high share of working-age adults.
• Later, the economic gift dissipates, as
the share of elderly rises.
12
78 Asian and non-Asian countries
Sample years from 1965 to 1990
13
14
Statistically insignificant
Statistically significant
15
Statistically significant
• The growth rate of the economically active population
exceeds that of the overall population, higher growth
rates of GDP per capita have appeared
• If the population is growing more rapidly than the work
force, the estimates provide evidence of slower growth.
16
• The coefficient on the
population under the
age of 15 is negative
and significant in both
specifications: thus an
increase of 1
percentage point in
growth of the
population about 0.4
percentage point
(column b).
• A small, statistically
insignificant, but
positive, coefficient
emerges for the elderly
population.
• Economic growth is less
rapid when the growth rate
of the working-age
population falls short of that
of the population as a whole
before 1970.
• Economic growth is more
rapid when the growth rate
of the working-age
population exceeds that of
the population as a whole
after 1970.
• Economic growth is
somewhat less rapid when
the growth rate of the
working-age population
once again falls short of that
of the entire population (an
aging phenomenon in the
next quarter century).
Explaining the East
Asian Miracle
19
• Population dynamics can explain between 1.37 and 1.87 percentage points of
growth in GDP per capita in East Asia or as much as one-third of the miracle (1.9 /
6.11 = 0.31).
20
• Suppose the steady
state of economic
growth (i.e., stable
population growth) is
2%, then the miracle
growth is defined as
4.11%.
• Population dynamics
explains almost half of
the miracle (1.9 / [6.11
- 2] = 0.46).
AGING POPULATION AND ECONOMIC GROWTH
Park, D and Shin, K. 2011. Impact of Population
aging on Asia’s Future Growth. ADB Economics
Working Paper Series No. 281, Asian
Development Bank, Manila.
22
Examine the impact of the demographic
transition on the economic growth of 12
developing Asian economies from 2011 to 2020
and from 2021 to 2030 using projections of age
structures readily available from the United
Nations (UN) population database.
Introduction
The 12 economies in the sample are the People’s
Republic of China (PRC); Hong Kong; India;
Indonesia; the Republic of Korea; Malaysia;
Pakistan; the Philippines; Singapore; Taipei;
Thailand; and Viet Nam.
23
• Old-age ratio—the ratio of those aged 65 or older to the working-age population (people
aged 15–64).
• Youth dependency ratio—the ratio of those aged 0–14 to the working-age population. 24
25
26
Sources of
Growth
• The first demographic dividend refers to the
accelerated economic growth associated with a
rise in the share of people of working age in
the total population.
• 𝑌/𝑃 = 𝑌/𝐿 × 𝐿/𝑃
i.e. GDP per capita = GDP per worker ×
(number of workers/total population)
• Use the Cobb-Douglas production function:
𝑌 = 𝐴𝐾 𝛼 (ℎ𝐿)(1−𝛼) where ℎ is human
capital, ℎ𝐿 is total labor input, A is total
factor productivity,𝛼 is the share of capital
in income.
• The per-worker production function is:
𝑦 = 𝑓 𝑘 = 𝐴𝑘 𝛼 ℎ 1−𝛼
• GDP per capita = (𝐿/𝑃) 𝐴𝑘 𝛼 ℎ(1−𝛼)
27
• Growth rate of GDP per capita:
• Δln(𝑌/𝑃) = Δln 𝐿/𝑃 + Δln(𝑌/𝐿)…… (1)
• Growth rate of GDP per worker:
• Δln(𝑌/𝑃) = Δln(𝐴) + 𝛼 Δln(𝑘) + (1 −
𝛼)Δ ln(ℎ)…… (2)
• Combining (1) & (2) gives:
• Δln(𝑌/𝑃) = Δln 𝐿/𝑃 + Δln(𝐴) +
𝛼Δln(𝑘) + (1 − 𝛼)Δ ln(ℎ)
• The growth rate of per capita GDP is made up
of four components: the growth rates of (i) per
capita labor, (ii) TFP, (iii) per labor physical
capital, and (iv) human capital.
 ln(Y/P)= ln(L/P)+ ln(A) + αln(k) + (1-α)ln(h)
28
Impact of Demographic Change on Growth
Labor force
participation
(L/P)
Old-age ratio—the ratio of those aged 65 or
older to the working-age population (people
aged 15–64).
Youth dependency ratio—the ratio of those
aged 0–14 to the working-age population.
Old-age
dependency
Youth
dependency
Productivity
growth (A)
Growth of
capital
accumulation
(K/L)
Growth rate of GDP per capita:
Δln(𝑌/𝑃) = Δln 𝐿/𝑃 + Δln(𝐴) + 𝛼Δln(𝑘) + (1 − 𝛼)Δ ln(ℎ)
29
• The independent variables are old-age dependency, youth
dependency, per capita GDP, and per capita GDP squared.
• The squared term captures possible nonlinear effects.
• Both dependent and explanatory variables are 10-year
average values.
• If the old-age dependency ratio increased by 10%, the
growth rate of per capita labor would decrease either by
0.56% (random effects) or by 0.68% (fixed effects).
30
Table 4：Estimation Result
TFP Growth
Initial TFP
Years of schooling
• Age structure of the
labor forces affects
labor productivity and
the productivity of all
productive inputs.
• Demographic change
does not exert a direct
effect on capital
accumulation, but
indirectly through its
negative effect on the
savings rate.
Initial population
Research and development stock growth
[1]
-0.020***
[0.003]
0.050***
[0.0120
0
[0.001]
0.001***
[0.020]
0.064***
[0.020]
[2]
-0.018***
[0.003]
-0.006
[0.015]
0
[0.001]
0
[0.001]
0.031
[0.021]
-0.068***
[0.024]
-0.061***
[0.011]
-0.023***
[0.003]
0.022***
[0.006]
0.680***
[0.254]
-0.447*
[0.025]
0.122***
[0.025]
0
[0.003]
0.000***
[0.000]
-0.027***
[0.003]
0.01
[0.009]
-0.046
[0.570]
0.001
[0.002]
0.268***
[0.060]
2.479***
[0.786]
0.109***
[0.018]
-0.638***
[0.154]
-0.294***
[0.107]
170
0.003*
[0.002]
0.261***
[0.060]
2.619***
[0.838]
0.109***
[0.018]
-0.597***
[0.160]
-0.199*
[0.113]
170
Old-age dependency
Youth dependency
K/L growth
Initial per labor physical capital
Initial TFP
Growth rates of TFP
Growth rates of population
Saving rate
Openness
Property rights
Old-age dependency
Youth dependency
Saving Rate
Life expectancy
Elderly participation
GDP growth
Initial per capita GDP
Old-age dependency
Youth dependency
Observations
0.141***
[0.030]
0
[0.003]
0.000***
[0.000]
0.062
[0.059]
-0.044
[0.049]
31
Impact of Demographic Change on Growth
Labor force participation (L/P)
Old-age
dependency
Savings rate
Youth
dependency
Productivity
growth (A)
Growth of capital
accumulation(K/L)
• Growth rate of GDP per capita:
•  ln(Y/P)= ln(L/P)+ ln(A) + αln(k) + (1-α)ln(h)
32
Impact of Demographic Change on Growth
Labor force participation (L/P)
High old-age dependency
ratio (aged 65 or older to
population aged 15-64)
Productivity
growth (A)
Savings rate
Growth of capital
accumulation(K/L)
• Growth rate of GDP per capita: GROWTH ↓
•  ln(Y/P)= ln(L/P)+ ln(A) + αln(k) + (1-α)ln(h)
33
Impact of Demographic Change on Growth
Labor force participation (L/P)
Lower youth dependency
ratio (aged 0-14 to
population aged 15-64)
Productivity
growth (A)
Savings rate
Growth of capital
accumulation(K/L)
GROWTH ↑
• Growth rate of GDP per capita:
•  ln(Y/P)= ln(L/P)+ ln(A) + αln(k) + (1-α)ln(h)
34
• From 2001 to 2020: youth dependency ratio: 0.328 to
0.273; old-age dependency ratio: 0.106 to 0.137.
• Combining the three channels, the collective impact of
the change in the youth dependency ratio is to
increase the PRC’s growth rate of per capita GDP by
0.605% (=0.087%+0.334%+0.072%+0.112%)while the
total impact of the change in the old-age dependency
ratio is to decrease it by 0.449%.
• Overall, demographic change raises the growth rate of
per capita GDP by 0.156%.
35
Table 5: Impact of Aging on Economic Growth Projections for 12 Asian Economies
2011-2020 （%)
Aggregate Physical
Capital/Labor Force
China. Peoples Rep. cf
Hong Kong. China
India
Indonesia
Korea Rep. of
Malaysia
Pakistan
Philippines
Singapore
Taipei,.China
Thailand
Variable
Labor
Total
Indirect
(Dependency
Force/
Factor
(through
Population
Productivity
saving)
Ratio)
Direct
Total
Youth
Old-age
0.087
-0.209
0334
-0206
0.072
-0.121
0.112
0.089
0.605
-0.449
Youth
Old-age
0.085
-0.519
0327
-0318
0.070
-0.185
0.110
0.136
0.592
-0.686
Youth
Old-age
0.159
-0.072
0615
-0.071
0.132
-0.041
0.206
0.030
1.113
-0.154
Youth
Old-age
0.117
-0.1 25
0.453
-0.124
0.098
-0.072
0.152
0.053
0.819
-0.268
Youth
Old-age
0.112
-0.407
0.431
-0.405
0.093
-0235
0.145
0.173
0.780
-0874
Youth
Old-age
0.142
-0.162
0349
-0.161
0.118
-0.094
0.184
0.069
0.994
-0.349
Youth
Old-age
0.169
-0.048
0631
-0.048
0.140
-0.028
0.218
0.021
1.178
-0.104
Youth
Old-age
0.157
-0.117
0606
-0.117
0.131
-0.068
0.203
0.050
1.097
-0.252
Youth
Old-age
0.152
-0.540
0386
-0337
0.126
-0.312
0.197
0.229
1.061
-1.160
Youth
Old-age
0.140
-0.323
0339
-0321
0.116
-0.187
0.181
0.137
0.976
-0.694
Youth
Old-age
0.068
-0.184
0262
-0.183
0.057
-0.107
0.088
0.078
0.475
-0.396
Youth
Old-age
0.214
-0.014
0826
-0.014
0.178
-0.008
0.277
0.006
1.494
-0.030
Viet Nam
36
K/L = aggregate physical capital/labor force
Source: Authors' calculation
37
Declining positive
impact of demography
on economic growth in
the next two decades.
Prepare for the ageing
population:
More and better
child care
Raise the legal
retirement age
Provide adequate
income support and
health care to the
elderly
Conclusions
SUPPORT
SYSTEM IN
ASIA
• Lee, Sang-Hyop, Andrew Mason, and Donghyun
Park. Why Does Population Aging Matter So Much
for Asia?: Population Aging, Economic Growth
and Economic Security in Asia. No. 284. Asian
Development Bank, 2011.
• Lee, S.- H. and N. Ogawa (2011), ‘The economic
lifecycle and support systems in Asia’, in D. Park,
S.-H. Lee and A. Mason (eds), Aging, Economic
Growth , and Old-Age Security in Asia.
Cheltenham, UK and Northampton, MA, USA:
Edward Elgar Publishing.
Introduction
Table 5.1
Ratio of labor income to per capita consumption of children and
young adults in eight Asian economies in various years
Age Group
0-19
15-19
20-24
25-29
PRC (2002)
India (2004—05)
Indonesia (2005)
Japan (2004)
Republic of Korea (2000)
Philippines (1909)
Taipei, China (1998)
0.1 1
0.09
0.09
0.25
0.24
0.96
0.63
0.65
0.50
0.73
0.59
0.65
1.99
1.09
0.93
1.05
1.33
1.03
1.30
Thailand (2004)
0.07
0.01
0.05
0.07
0.03
0.28
0.03
0.14
0.18
0.10
0.20
0.65
1.11
Note:
These are synthetic cohort values that are calculated using recent data on survival
weights of the United States. Values are the ratio of the stun of per capita labor income at each single year of age and the sum of per capita consumption at each
single year of age within the age group.
Source:
National Transfer Accounts database, accessed 1 July 2011 .
• In Japan, those in their early twenties contribute the
least to their own support.
• Labor income is especially high relative to consumption
among Chinese workers in their twenties.
40
• In all eight economies, there is a relatively rapid transition to low incomes at
older ages. Labor income drops below consumption at age 55 in Taiwan,
followed by Korea at 56 and Indonesia and Thailand at 58.
• 60-year-olds do not produce more than they consume.
• How to reduce the dependency of older adults?
41
42
The Economic Lifecycle
• The gaps between consumption and labor income is
called the lifecycle deficit
3 Components of Age Reallocation System
• Public transfers, i.e., education, public pensions,
and healthcare.
• Private transfers: transfers among family members
• asset- based reallocations, i.e., pension funds or
personal saving.
43
Asset-based
public transfers
• The lifecycle deficit – consumption greater than labor income –
must equal net public transfers plus net private transfers plus
asset- based reallocations.
• Familial transfers fund about 45 percent of the lifecycle deficit for
the elderly in Taiwan, 33 percent in Thailand, and slightly under
20 percent in the PRC and Korea.
44
public transfers
• Compared with European and Latin American countries, the
public sector is generally less important to the elderly in Asia.
• In the Philippines and Thailand, net public transfers are zero
45
Asset-based
public or private
transfers
• Assets are an important source of support in all Asian
countries except the PRC and Taiwan, where transfers
are more important. In Indonesia and the Philippines,
the elderly rely almost entirely on assets.
46
• The elderly of Asia rely much more on familial
transfers as age increases; at the oldest ages, familial
transfers are quite important in filling the gap between
the lifecycle deficit and decreasing asset- based
reallocation.
• In the US, public transfers rise in importance for
the older elderly. Net familial transfers to the elderly
are quite small.
• In each of the East Asian economies, public transfers
and asset- based reallocations have increased in
importance as familial transfers have decreased
47
Fiscal Effect of Population Age Structure
Fiscal support ratio is defined as the ratio
of aggregate taxes to aggregate benefits
• Population aging combined with the current tax and
benefit policies would lead to a 26% decline in the
fiscal support ratio by 2050 in Japan.
• Taxes increase, benefits decrease, deficits increase,
or some combination of the three
48
49
Low-income countries High-income countries
• If the needs of a growing elderly population are met
through greater reliance on lifecycle saving, population
aging will lead to an increase in assets, with favorable
implications for economic growth.
50
The End