Last updated: 14:13 / Thursday, 5 December 2013
Research by Matthews Asia

Asia’s Frontier Markets: Hitting the Demographic Sweet Spot

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Asia’s Frontier Markets: Hitting the Demographic Sweet Spot
  • In Cambodia, Laos, the Philippines, Bangladesh and Pakistan, one person in five is between 15 and 24 years of age
  • In contrast, the labor force is projected to shrink in Japan and South Korea
  • Remittance flows to frontier markets contribute to about 11% of GDP in the Philippines and Bangladesh

The age demographics of Asia’s frontier markets are another indicator that they are poised for growth. Over the long term, GDP growth rates are generally determined by increases in the size of the labor force, capital accumulation and technology. Measured by the increase in the labor force and the favorable age profile of their populations, the frontier markets are in a demographic sweet spot.

In Cambodia, Laos, the Philippines, Bangladesh and Pakistan, one person in five is between 15 and 24 years of age. The median age in these countries is 25 or under, compared to over 34 in Japan, South Korea, Thailand and China. If people hit their productive peak at around 40, the younger countries stand to see steady productivity gains over the next 20 years.

Between 2010 and 2020, the labor force is projected to grow the most in Laos (37%), Pakistan (35%), Cambodia (31%), Bangladesh (29%) and the Philippines (25%). In India and Vietnam, the labor force is expected to expand by 20%. In contrast, the labor force is projected to shrink in Japan and South Korea. Between an increased labor force and the potential for increased productivity, frontier countries may well outstrip their counterparts in GDP growth.

Favorable demographics alone, however, are not sufficient to drive growth. Countries must be able to gainfully employ people entering the workforce, which drives earnings, savings and investment. This is where capital accumulation comes into the equation. Strong institutions, infrastructure and foreign direct investment (FDI) policies must be in place for a country to accumulate capital, either through domestic savings or foreign investment. Large-scale job creation requires active labor market policies and vocational training. Frontier markets would do well to emulate some of the successes of their East Asian and more developed Southeast Asian peers.

Another effect of relative youth combined with labor force growth is the “remittance dividend.” When a frontier economy cannot fully employ its workforce, large numbers of workers migrate to countries with stronger economies. They then send money back home to help support their families, which helps stimulate the economies of their native countries. Indeed, in certain situations, remittance flows to frontier markets can contribute substantially to their economies, varying between 1% of GDP in Indonesia to about 11% of GDP in the Philippines and Bangladesh.

Overall, the “demographic dividend” is expected to add 1.5% to annual GDP growth in Vietnam, 1.1% in Pakistan and 1% in India between 2011 and 2020.

This report was published in Matthews Asia’s “Asia Now - The Frontier Issue

 

 

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