Reaping Indonesia’s demographic dividend: A supply and demand view

October 23, 2024

JAKARTA – In their seminal book, BRICS or Bust?, Hartmut Elsenhans and Salvatore Babones set out the proposition that middle-income economies often become ensnared in what is known as the middle-income trap. The result is that while it is relatively easy for poor economies to develop into middle-income economies, it is notoriously difficult for middle-income economies to become high-income economies. Indeed, the empirical evidence is clear: Few economies across the globe have been able to make the successful leap from middle-income to high-income in recent decades, with Singapore being a notable exception.

This has important implications for Indonesia. Having survived tribulations such as the 1998 Asian financial crisis and the COVID-19 pandemic in our economic development journey, Indonesia is now on solid footing as a middle-income economy. But what is now confronting us may just be our greatest challenge yet.

According to Elsenhans and Babones, becoming a middle-income economy requires only moderate productivity and a moderately competent administration; conversely, becoming a high-income economy requires nothing short of high productivity, as well as strong and effective governance. Failure to achieve excellence in either or both dimensions invariably results in the middle-income trap. Capitalizing on Indonesia’s demographic dividend As Indonesia prepares to surmount this middle-income trap over the next few decades, it has one unique advantage working in its favor: a sizeable demographic dividend, which is expected to peak in the 2030s with 68 percent of Indonesians at their productive working age.

In a speech delivered by outgoing President Joko “Jokowi” Widodo in 2023 during the unveiling of the