"Low Fertility, Population Aging, and the Future of Asia's Economies"

• Senior Fellow, East-West Center / Professor of Economics, University of Hawaii

Important population changes are occurring around the world, but especially in Asia. Fertility is declining to or has reached low levels. Life expectancy has reached high levels and continues to rise. Population growth has slowed and in some countries populations are beginning to decline. Population age structures are changing: the share in the working ages is reaching or has reached a peak. The coming decades will be marked by rapid growth in the number of elderly. Japan is leading these demographic changes in Asia, but Japan is not alone. The same changes are occurring Asia’s two giants, India and China, although with a delay. These demographic changes will have profound and lasting implications for the economies of Asia and the world. During the last few decades Asia’s economies have benefited from a demographic dividend. The share of the population in the working ages has increased - pushing per capita income to higher levels. The dividend has now turned negative in Japan. The decline in the share of the population in the working ages is depressing per capita income. In other Asian countries the demographic dividend will also soon turn negative. Despite this unfavorable turn of events, a second and even larger demographic dividend may be realized.Improvements in life expectancy and a longer retirement provide a powerful incentive for accumulating wealth and increasing the supply of capital. By encouraging saving, Asian countries can expect to realize a second demographic dividend that is substantially larger than the first dividend. The second dividend is not automatic, however. Asian countries may choose to provide for the financial needs of the elderly through familial support systems and public transfer programs. If they do, the burden on future generations of workers will be substantial and economic growth will suffer. The popular view that population aging will lead to economic decline may prove to be correct. Given the correct policies, however, population aging may lead to a new era of economic growth.

Andrew Mason is Professor of Economics, University of Hawaii at Manoa and Senior Fellow at the East-West Center, Honolulu, Hawaii. He is a member of the Center for the Economics and Demography of Aging (CEDA) at the University of California, Berkeley and a member of the Harvard Program on the Global Demography of Aging. He was a Visiting Professor, Institut d’Etudes de Politique de Paris in 1998 and a Visiting Scholar at Massachusetts Institute of Technology in 1983-84. He received his Ph.D. from the University of Michigan in 1975. His most recent books are Sharing the Wealth: Demographic change and economic transfers between generations, Oxford University Press, co-edited with Georges Tapinos, and Population Growth and Economic Development in East Asia: Challenges Met, Opportunities Seized, Stanford University Press.