taking advantage of the demographic bonus in vietnam

8/12/2019 Taking Advantage of the Demographic Bonus in Vietnam

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Taking advantage of the demographic bonus in Vietnam: East Asian

and Asian Experiences

Demographic bonus occurs when the Total Dependency Ratio is less than50, meaning that a person of non-working age will be supported by more than

two working age persons. As a matter of fact, as demographic changes whichinvolves both Fertility and Mortality Rates, the age structure is also changed

producing a Demographic Bonus in a certain period.

Demographic bonus period does not last forever. In fact, it only comes in aspecific duration. Therefore, any country in Demographic period must adjust its

own social, economic and political factors so that it can take the most advantage

of such a great population structure.

The Figure 1 above compares the growth of per capita income in East Asia

and Asian countries for the period from 1950 to 2005. Obviously, except forJapan which proved to be one of the most developed countries in the world,

Asian countries had the same level of per capita income from 1950 to about

1965. However, from 1965 on, there were some differences in the growth. To be

more specific, Taiwan and South Korea were two countries that experienced the

fastest and most significant improvements in their earnings per person. Besides,the period also witnessed a moderate positive change in the per capita income of

both Malaysia and Thailand. Indonesia and Philippines had a positive change in

their per capita income at the beginning of this period but then suffered from

some negative effects which drove their individual earnings down.


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Figure 2 illustrates the per capita income growth rate of Asian countriesduring the period of 30 years from 1960 to 1990. South Korea, Singapore,

Taiwan and Japan had the highest rate with over 5% each. Thailand and

Indonesia are in the same area but still had a much lower rate of income growth

than those four countries mentioned above. By and large, it may take those twocountries several decades to catch up with the growth of such countries. So whatare the underlying causes? What enables them to make such a big difference?

1. East Asian Experience:

To begin with, age structure is one of the major factors that contribute tothe success of East Asian countries over the above period. Age structure

presents the distribution of a population by age or age group. The fact that each

age and age group has different characteristics in terms of labour andconsumption has distinct consequences for the economy of a country. The

young, for example, require an intensive investment in health and education in

order to produce a healthy and skillful labour force later, while the elderly

require good health care and sustainable retirement schemes. When the relativesize of each of these groups in a population changes, so does the Intensity of the

related economic opportunities and pressures because of their impact on

economic growth and per capita income. According to Bloom and Williamson

(1998) who ran a cross-country regression of economic growth applied to

developing and developed countries, the results indicate that the population

dynamics can explain as much as one third of the miracle happening in the

growth of GDP per capita in East Asia.


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In addition to age structure, there are also several factors that lead to the so-

called miracle era in East Asia, including : a large and high quality base of

human resource, a stable population and strong growth of employment and last

but not least, the high savings and investment rates.

Source: JICA (2003)

According to JICA (2003), Japan had taken a comprehensive population

policy throughout crucial sectors such as the healthcare system, financial andfiscal sectors, educational sectors, industrial structure and social related fields.

All of such improvements contributed to the 5.3% of growth rate in per capita

income in Japan for the late twentieth century (Figure 2).

Moreover, a substantial increase in the labor force coupled with high

employment rate took an integral part in East Asias success making itspopulation strong and economically active in the world market. High-

performing economies in Asia has the most significant labour force growth rate

compared to the population growth rate with the difference of 0.8- the highest

number in the table 1.

In the meantime, employment and productivity especially in service and

manufacturing sectors improved enormously. A reduction in the number of

agricultural laborers was made up for by the growth in the labor productivity in

the agriculture. From the Table 2, it is striking that Japan was among the


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countries with lowest growth rate in the agricultural labor force (-3.9%) but the

highest growth rate in the labor productivity in the same sector (4.5%)

Saving and investment through the efficient mobilization of internal

resourcesplayed a crucial role with regard to the persistent growth during the miracle

era

of this region as well: Figure 4 shows that, during 1960-1990, the average

annual

growth rate of per labour capital in Japan was 7.6%, as compared to that ofSouth


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Korea and Taiwan which was more than 8.5%.

Source: Summer and Preston (2001), as quoted by East-West Center (2009)

In addition to the important factors mentioned above, a number of studies

indicate that favorable economic and political conditions also largely

contributed to East Asias ability to make the utmost use of the DemographicBonus. Along with the steep growth of capital stocks and quality human

resources, active strategies and policies of East Asian governments further

helped to explore the potential of a solid base of knowledge and technological

know-how for the internalization of economic growth. Figure 5 shows the

difference between South Korea and Ghana in terms of per capita income. In

this figure, for the sake of comparison, per capita income is estimated by the1990 prices. It is obvious that after three decades of growth, the gap between the

two countries was still widening despite having a same starting point in the early

1950s; South Korea became a high income country, while Ghana remainedpoor. In this case the difference was largely attributed to differences in

knowledge and know-how (World Bank, 1997).


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2. Asean Experience:

The Demographic transition in ASEAN countries has occurred more slowlythan that in East Asia. According to the data from United Nations in 2008,

Asean countries have just started their Demographic Bonus period withSingapore being the first country from 1980, followed by Thailand in 1990 and

Indonesia and Vietnam in 2010.


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Source: Own compilation from the United Nations (2008).

It can be seen from the graph that the average period of Demographic

Bonus in Asean countries is about 30 years.One of the ways in which ASEAN countries can be characterized with

regard to their efforts to promote economic growth is by their significantlydifferent educational and health strategies and policies as well as diverse

political environments. Both Thailand and Malaysia are trapped in the middle

income level of development despite their heavy investment in the quality of the

labor force. The root cause of this situation is that in these two countries human

resources are heavily dependent on foreign guidance, particularly with regard tomanagerial and productive skills. The growth rates of employment and labour

productivity have therefore not significantly increased, and as such it hasbecome difficult to take off like South Korea, Taiwan or Singapore have been

able to do.

In summary, the above analysis shows that a stage of Demographic Bonus

has occurred or will occur in East Asian and ASEAN countries, but that theactual benefit obtained from this important demographic opportunity is

dependent on the different approaches which have been or will be employed to

prepare and make use of it. Some countries, e.g. Japan and South Korea, have

been successful in this regard due to the efficient use of their human resources,

while other countries are struggling to gain from their Demographic Bonusperiod while they are already in the midst of it (e.g.Thailand) or are still

preparing to take advantage of the Demographic Bonus (Indonesia, Malaysia,


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and the Philippines). As it thus appears, a Demographic Bonus period is only an

opportunity; it will not bring any Bonus to countries who do not have

appropriate and well planned strategies and policies to make use of it. This is an

important message for Viet Nam as it is on the verge of welcoming its own stageof demographic opportunity.

taking advantage of the demographic bonus in vietnam

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