Population Aging and the Possibility of a Middle-Income Trap in Asia

30 Pages Posted: 8 Jun 2018

See all articles by Joonkyung Ha

Joonkyung Ha

Hanyang University - Ansan Campus

Sang-Hyop Lee

University of Hawaii - Department of Economics

Date Written: February 2018

Abstract

We present three conditions for a demography-driven middle-income trap and show that many economies in East, South, and Southeast Asia satisfy all of them. The conditions are (1) support ratio—the ratio of workers to consumers—matters for economic growth, (2) economic development accompanies more investment in human capital and lower fertility due to the quantity–quality trade-off, and (3) current low level of fertility corresponds to too low support ratios for keeping up with the frontier economies in the long run. The panel analyses for 178 countries, among which 30 are ADB developing member economies, show that (i) and (ii) are satisfied for Asia with higher elasticity than others. As for (iii), we set up a dynamic model for simulations, showing that about two-thirds of ADB members have unsustainable level of support ratios, implying possibilities of a middle-income trap due to demographic headwinds in the future.

Keywords: demography, fertility, middle-income trap, national transfer accounts, support ratio

JEL Classification: J11, O11, O53

Suggested Citation

Ha, Joonkyung and Lee, Sang-Hyop, Population Aging and the Possibility of a Middle-Income Trap in Asia (February 2018). ADBI Working Paper 536, Available at SSRN: https://ssrn.com/abstract=3188471 or http://dx.doi.org/10.2139/ssrn.3188471

Joonkyung Ha (Contact Author)

Hanyang University - Ansan Campus ( email )

1271 Sa-1 dong
Ansan
Kyunggi-do, 425-791
KOREA

Sang-Hyop Lee

University of Hawaii - Department of Economics ( email )

2424 Maile Way, SSB 542
Honolulu, HI 96822
United States
808-956-8590 (Phone)

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