PHOTO: ALAMY STOCK PHOTO / DAVID CHEREPUSCHAK; ART: ISTOCK / EBLIS
Demographic change is having a fundamental impact on the global economy— but not in the way we once thought it would.
A mere five decades ago, some observers were predicting that the human population was too big and would soon strip the world of resources, leading to mass starvation, collapse of the global economy, and a host of other ills. But the doomsday scenario of mass overpopulation did not materialize. Rather, for the first time in modern history, the world’s population is expected to virtually stop growing by the end of this century, owing in large part to falling global fertility rates.
Japan’s unique population, fertility, and immigration history make it a leading exemplar of this trend. The impact of an aging and shrinking population is already visible in everything from economic and financial performance to the shape of cities and public policy priorities (such as the long-term solvency of public pension, health care, and long-term care systems).
With demographics having such a clear and accelerating impact, Japan is the test kitchen for “shrinkonomics”—a laboratory from which other countries are beginning to draw lessons.
The IMF’s work on the Japanese economy has focused heavily on demographics in recent years— mirroring the intense debate within Japan on how best to respond to the pressures from a rapidly aging and shrinking population. While each country’s experience will be different—and prompt different solutions—some of the key macroeconomic and financial effects can be identified from Japan’s recent experience.
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