Two decades after globalization fuelled a global economic boom, growth has shifted onto a more subdued path, where it is likely to remain for the foreseeable future. Beyond the immediate shock of fragmenting trade and investment ties – a result of rising geopolitical tensions, particularly between the United States and China – lie structural headwinds, including population aging, stagnant productivity, and the growing costs of inequality and natural disaster. These challenges strike at the heart of Asia’s growth model.

Not only is fragmentation causing Asia’s export-oriented growth engine to sputter; rapid population aging is tightening the labour supply and compounding fiscal pressures across the region. The share of people aged 65 and above in Asia will nearly double by mid-century, from 9.8% in 2023 to 18.6% by 2050. Japan and South Korea are already “super-aged” societies, with more than 20% of the population aged 65 or older, and China’s population has begun to decline. India and some Southeast Asian economies still enjoy a demographic dividend, but that window is closing quickly.

But demographics need not be destiny. Using new digital technologies – and, in particular, AI – Asia can invigorate productivity growth, ease labour shortages and extend people’s working lives. After all, like electricity and the internet, AI is a general-purpose technology with the potential to transform production, services and innovation.

But, while early evidence indicates that AI can improve worker productivity, enable the automation of a growing range of tasks, and spur the creation of new products and services, the technology’s broader macroeconomic impact remains uncertain. Some analyses suggest that AI could raise global productivity growth by 0.8 to 1.3 percentage points annually over the next decade, while others offer more conservative estimates.

As with previous technological revolutions, AI’s impact will ultimately depend on countries’ capacity to absorb and apply it effectively. For now, this capacity varies widely across Asia. According to the IMF’s AI Preparedness Index, advanced economies, such as Australia, Japan and Singapore, rank above their peers elsewhere, based on indicators like digital infrastructure, economic integration, regulation, and labour-market policies. The region’s large emerging economies, including China, India and Indonesia, also perform better than their peers. But low-income economies, like Bangladesh and Cambodia, are lagging.

Given the speed and scale of the transition ahead, and the gathering growth headwinds, all Asian economies should be working to strengthen their ability to harness AI. To understand what must be done, it is worth revisiting the Nobel Prize-winning research of Philippe Aghion, Peter Howitt and Joel Mokyr. Aghion and Howitt formalized Joseph Schumpeter’s idea of creative destruction – the process by which new technologies replace old ones – while Mokyr, drawing on history, found that lasting progress also requires openness to new ideas and a commitment to scientific inquiry. Together, they show that sustained prosperity depends on continuous technological progress supported by an enabling culture and institutional framework.

For Asian countries, the lesson is two-fold. First, they must foster the skills people need to make use of AI. Investment in digital literacy and Stem ( science, technology, engineering and mathematics ) education can help to prepare people for the transformation ahead, while lifelong-learning and reskilling programs can smooth the adjustment for those already in the workforce. With AI enabling the automation of a growing range of routine and complex tasks, complementary technical, digital and social skills are essential.

Such programs should be broadly accessible, and complemented by strengthened social-protection systems and structural reforms that reduce labour-market dualism, thereby ensuring that good, secure jobs remain widely available. Otherwise, job polarization and income disparities could widen, and growth will become more imbalanced and less resilient.

Beyond fostering the skills people need to make use of AI, Asian governments must make it possible for people to apply those skills creatively. This means investing in research and development, building reliable and broadly accessible digital infrastructure and secure data systems, and designing regulatory frameworks that ensure ethical AI use. Open competition, cross-border research collaboration, and greater access to finance for start-ups can then ensure that innovation is not confined to a few firms or countries. Such inclusion is vital: progress demands that new ideas and young firms have the tools and opportunities to challenge incumbents.

The stakes are high. If AI adoption remains limited to a few frontier economies or sectors, technology gaps would widen, with far-reaching economic, social and political consequences. But if Asia harnesses human creativity and AI tools effectively, it can build resilient, innovative and inclusive economies capable of overcoming current challenges and unlocking new sources of growth.

Lee Jong-Wha is a professor of economics at Korea University and a former chief economist at the Asian Development Bank and senior adviser for international economic affairs to the president of South Korea.

Copyright: Project Syndicate