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

Joonkyung Ha and Sang-Hyop Lee

Emerging Markets Finance and Trade, 2018, vol. 54, issue 6, 1225-1238

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 involve (1) the support ratio of workers to consumers has an impact on economic growth, (2) economic development accompanies more investment in human capital and lower fertility due to the quantity–quality trade-off, and (3) a current low level of fertility corresponds to very low support ratios for keeping up with frontier economies in the long run. Panel analysis for 178 countries shows that (1) and (2) are satisfied for Asia with higher elasticity than others. As for (3), we set up a dynamic model for simulations, showing that approximately two-third of Asia’s developing countries have an unsustainable level of support ratios, implying possibility of a middle-income trap due to future demographic headwinds.

Date: 2018
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Working Paper: Population Aging and the Possibility of a Middle-Income Trap in Asia (2018)
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DOI: 10.1080/1540496X.2018.1429263

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