Demographic Transitions and Economic Miracles in Emerging Asia

07/01/1998
Summary of working paper 6268
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...changing demographics will induce a 2.0 to 2.4 percentage point decline in Hong Kong's GDP per capita growth rate, a 2.5 to 3.0 percentage point decline in Singapore, a 1.9 to 2.2 percentage point decline in Korea, and a .9 to 1.1 percentage point decline in Japan.

Despite the numerous shocks that have recently rocked several East Asian countries, the region's rapidly accelerated growth over the past several decades still stands as a phenomenal achievement, and continues to be a seductive topic for economic analyses. Of particular interest is what sparked this surge. NBER Research Associates David Bloom and Jeffrey Williamson believe that one area deserving more attention is demographics.

In Demographic Transitions and Economic Miracles in Emerging Asia (NBER Working Paper No. 6268), they focus on the fact that between 1965 and 1990, East Asia experienced a particularly fortunate demographic circumstance: because of declines in infant and child mortality that began in the 1940s, followed by fertility declines, its working-age population grew much faster than its dependent population. In other words, the number of people participating in the labor force was increasing while, proportionally, the number of people sitting on the sidelines was decreasing.

Bloom and Williamson believe that one-third to one-half of the growth experienced in East Asia between 1965 and 1990 could be attributable to the region's ability to take advantage of this "demographic gift... A third or a half certainly isn't everything, but it places population dynamics among the most important growth determinants," the authors state. They note that East Asian economies achieved their so-called "miraculous" growth rates because they were able to combine their "gift" with other "transitional forces," such as the ability to adopt new industrial technologies, invest in human capital, and exploit global markets.

Of course, the demographic shift that was so beneficial to growth was not simply the result of happenstance. Bloom and Williamson trace it to the fact that after World War II, foreign aid and advances in health care came to the region in a "rush," and governments were aggressively working to improve their social infrastructure. The effect was a sharp drop in the infant and child mortality rates that, according to Bloom and Williamson, was a driving force that "triggered one of the fastest and most dramatic demographic transitions ever."

A key question now is how these demographics will play-out in the future development of East Asian economies. The pay-back for the gift is that as this large group of workers ages, they will produce substantial growth in the elderly dependent population.

Bloom and Williamson contend that sometime in the near future the demographic gift in East Asia will dissipate -- and consequently, economic growth will tend to slow down -- as the share of the elderly in the population increases.

For example, they forecast that unless something happens to offset them, changing demographics will "induce a 2.0 to 2.4 percentage point decline in Hong Kong's GDP per capita growth rate, a 2.5 to 3.0 percentage point decline in Singapore, a 1.9 to 2.2 percentage point decline in Korea, and a .9 to 1.1 percentage point decline in Japan." The lesson here, they say, is that "any economic effect due to the changing age distribution is only temporary."

Bloom and Williamson believe one interesting region that may soon realize the future beneficial effects of demographics is South Asia, where "demographic transitions began later or proceeded more slowly, and whose progress has not yet rivaled that of East Asia." The authors see South Asia realizing a .8 to 1.4 percentage point increase in its growth rates as it "enters the 'gift' stage," with the biggest gains accruing to Pakistan and Bangladesh. "Southeast Asia should register a little smaller demographic gift (.6 to 1.1 percentage points) with a lot of variance across the region," according to Bloom and Williamson. "The biggest gainer will be the Philippines while the biggest losers will be Malaysia and Thailand."