Asia’s demographic transition poses two huge challenges: (1) developing social systems and institutions that can provide economic security to the growing number of elderly and (2) sustaining strong economic growth over the next few decades. How well Asia tackles these two challenges will determine whether the region will be able to revert to its pre-crisis high- growth trajectory in the medium and long term. One strategy for supporting the elderly and achieving strong, sustained growth is to promote investment in physical capital, a strategy very much in line with Asia’s traditionally high saving and investment rates. The other strategy is to promote investment in human capital to make workers more productive. Parents’ recovery of human capital investments in their children will
require taxes and public transfers.