Age structural transition and economic growth : evidence from South and Southeast Asia

Abstract

Age structural transition is a process and a consequence of shifting age structure from a young aged population to old aged population. It is well known that economic growth in the East Asian countries was significantly contributed by demographic gift, that is decline in young aged population and increase in working aged population. However, little is known about the role of age structure changes on economic growth in the context of South and Southeast Asia. In this paper an attempt has been made to study the nature and process of age structural transition in the countries of South (Bangladesh, India and Sri Lanka) and Southeast Asia (Indonesia, Malaysia, Philippines, Singapore and Thailand). Further, this paper also attempts to study the influence of age structure changes on the economic growth in these countries. Time series analysis covering the period 1950-92 has been used for studying the relationship between age structure and economic growth, controlling macroeconomic variables such as investment share of GDP, net foreign balance, share of public consumption expenditure, inflation rate and openness. The ‘demographic bonus’ or ‘window of opportunity’ had a positive impact on economic growth in all Southeast Asian countries except in the Philippines. The South Asian countries did not perform well in terms of economic growth at the onset of ‘window of opportunity’. The results also indicate that countries that have had open economies and had excellent human capital benefited more from the “window of opportunity”. In the next 20-25 years, the window of opportunity is likely to benefit most South Asian countries if favourable policies are pursued to take advantage of this with opening up their economy. The demographic bonus will be available for another 15-20 years followed by a period of demographic turbulence in the Southeast Asian countries. There will be a faster growth in the old aged population after 15 years and stagnantion/decline in the working aged population. As the gaps between demographic indicators are narrowing among the Asian countries, the question remains whether demographic convergence will lead to economic convergence in the future. The demographic transition has given the South Asian countries an opportunity for economic convergence. However, whether that opportunity is realised will depend on whether socio-economic policies are favourable to economic growth. JEL Classification: F43, J11, J18, J21, J24 Key words: Age structure, window of opportunity, economic growth, open economy, South Asia, Southeast Asia.