Demographic Transition and Economic Growth Potential in Indonesia

Compared to other Asia’s most dynamic economies, currently Indonesia is still in the earlier stage of demographic transition, with 7.9 percent of the population aged 60 years or older in 2010. Nevertheless, demographic transition is considered as a quite important issue, not only its implication to macro economic developments in the medium-long run, but also its relationship with social values prevailing in society. The preliminary exercises conclude that the impacts of aging population on economic growth potentials can be explained well through labor force effect and the changes in national saving behavior. In this regard, based on a preliminary exercise, it is estimated that the increase in the proportion of aging population over the next two decades will hamper economic growth potentials, with approximately 0.5 to 0.7 percent potential loss per year. Beyond these findings, the challenges in Indonesian demography are also inseparable with the problem in fostering a higher quality of life and promoting a balance between population dynamics, natural resources and socio-economic development. It seems also that the future economic growth must come from the growth of productivity. The fact that productivity growth tends to slowdown during the last ten years implies that the Government needs to re-examine the policies with regard to education and training and technology development.