1. + Update Yes, I have gotten your exams No, I haven’t graded them yet Your thoughts on the exam? 6-1

2. + Readings Chapter 6 (and 7) Do you have chapter 6 (pop) in your book? New article on website: Ecological Macroeconomics: Consumption, Investment, and Climate Change 7-2

3. + Homework Due next Tuesday: bring in a news article that touches/discusses environmental economic issue(s) 7-3

4. + Chapter 6 The Population Problem

5. + Historical Perspective World Population Growth Population growth is a significant source of nonsustainability. Average rates of population have declined in most countries except for on the continent of Africa. Both fertility rates and birthrates have exhibited downward trends recently. Most developing countries are expected to have substantial increases in their populations. Poorer countries are expected to contribute to 98% of population growth between 1998 and 2025. 6-5

6. + TABLE 6.1 Average Annual Rate of Growth by Region and Development Category: 1950–2050 [In percent] (1 of 2) 6-6

7. + TABLE 6.1 Average Annual Rate of Growth by Region and Development Category: 1950–2050 [In percent] (2 of 2) 6-7

8. + TABLE 6.1 Average Annual Rate of Growth by Region and Development Category: 1950–2050 [In percent] 6-8

9. + 6-9

10. + Population growth in Mashreq (actual and projected) (millions) Source: UN Population Division. 2002 Revision. World Population Prospects 6-10

11. + Population growth (actual and projected) (millions) Source: UN Population Division. 2002 Revision. World Population Prospects 6-11

12. + Definitions.. Total fertility rate is the number of live births an average woman has in her lifetime; used to determine what level of fertility could lead to a stationary population. A stationary population is one in which the birthrate is constant and equal to the death rate. With a stationary population, the growth rate is zero. The replacement rate is the level of total fertility that is compatible with a stationary population. In the United States, the replacement rate is 2.11. Currently the total U.S. fertility rate (2.04) is below the replacement rate. 6-12

13. + 6-13

14. + During the last 55 years, the Arab population has increased from around 72 million in 1950 to about 300 million in 2005, About 5% of the total world population. 6-14

15. + Rural to Urban Migration (1961-2003) Source: World Bank data 6-15

16. + Rural to Urban Migration (1961, 1980, 2003) 6-16

17. + Densities in selected Arab countries, inhabitants per sq. km., 2007 (Source: World Bank 2007) Ex. Dense populations in Gaza’s refugee camps contributed to aquifer depletion, which resulted in saltwater intrusion and saline water unsuitable for irrigation 6-17

18. + Population density (inhabitant per km2) (2006) 6-18

19. + Population growth and economic development Questions Does population growth enhance or inhibit the opportunities of a country’s citizens? Does the answer depend on the stage of development? Given that several countries are now entering a period of declining population growth, what are the possible effects of this decline on economic growth? 6-19

20. + Effects of Population Growth on Economic Development Marginal product (MP) and average product (AP) determines the effect of population on output. If the marginal product of an additional person is positive, then more people means more output. However – the existence of a positive marginal product is not a very appropriate test of the desirability of population growth! If the marginal product of an additional person is lower than the average product, then even though economic growth would increase in aggregate terms, a rising population reduces per capita welfare (on average). 6-20

21. + In other words How does population growth affect the average citizen? In the range of marginal productivities between zero and the average product, economic growth measured in aggregate terms would increase But Measured in per capita terms, would decrease 6-21

22. A simple definition of output: O = L * X Where O is the output level, X is the output per worker, L is the number of workers. Dividing both sides by population: Output per capita (O/P) is determined by two factors: the product of output per worker (X) and the share of population (L/P) that is in the labor force. 6-22

23. + Age Structure of Two Populations for the Year 2000 6-23 Age structure effect is the most direct effect of population growth on the percentage of people employed.

24. + Poverty in the Mashreq Poverty incidence (%)Number of poor (millions) Source: LAS, 2009 6-24

25. + High and Rising Unemployment (youth effect) Unemployment among youth (%) 2005/2006 Youth’s share in total unemployment (%) 2005/2006 Source: ALO, 2008 Unemployment rates for for Arab women > Arab men (31.2% compared to 25%; highest in Jordan: 59%) Only region where proportion of women in agriculture is increasing: 28.4% to 31 % in Mashreq 6-25

26. + Additional factors rapid growth? Youth effect Retirement effect Female availability effect (slower growth rate + fewer children = more females in labor force) Side note: how to define labor for mothers? Venezuelan constitution Both the dominance of the youth effect (over the retirement effect) and the female availability effect suggest that rapid population growth reduces the % of the population in the labor force  lowering economic growth per capita 6-26

27. + Other models.. Availability of savings Availability of savings constrains the level of additions to the capital stock Availability of savings is affected in part by age structure (older save more) All other things being equal: societies with rapidly growing populations could be expected to save proportionately less The lowered availability of savings would lead to lower amounts of capital stock and lower productivity per worker Limited substitution possibilities exist: law of diminishing marginal productivity In the presence of a fixed factor (land or raw materials, for example) successively larger additions of a variable factor (labor) will eventually lead to a decline in the marginal productivity of the variable factor 6-27

28. + average of arable land (ha) per capita in the Mashreq Source: World Bank data

29. + Does growth in output per capita have to be restrained by population growth? Could population growth be enhancing? One argument is that population growth enhances per capita growth  technological progress and economies of scale 6-29

30. + 6-30 Better technology shifts productivity

31. + Economies of scale? Economies of scale occur when increases in inputs lead to a more than proportionate increase in output (US is an example) w/o trade restrictions – market is global not domestic Level of domestic population has little to do w/ the ability to exploit economies of scale in the modern economy w/o borders 6-31

32. + Let’s examine data If population growth reduces per capita economic growth, then we should be able to see lower growth in per capita income in countries with higher population growth rates – all other things being equal A study by the National Research Council (1986) found that the evidence does not support the expectations. They found: Slower population growth would raise the amount of capital per worker and thus the productivity per worker Slower population growth unlikely to result in net reduction in agricultural productivity; might raise it National population density and economies of scale are not related Rapid population growth puts more pressure on depletable AND renewable resources 6-32

33. + more Rapid population growth may initially be advantageous but ultimately as capacity constraints become binding, becomes inhibiting. Impact is larger in less developed countries Rapid population growth may also increase the inequality of income. Why? 6-33

34. + Estimates of Child-Rearing Expenditures 6-34

35. + The Population/Environment Connection Population density, combined with poverty, has significant negative effects on environmental quality. The use of marginal lands leads to topsoil losses. Boserup, writes about the “induced innovation hypothesis” which says that increasing populations, trigger increased demand for agricultural goods. Land scarcity, however, results in agricultural innovations and increased sustainability. The opposite view, the “downward spiral hypothesis” posits poverty and degradation are reinforcing. Be sure to read the Debate 6.1 6-35

36. + Effects of Economic Development on Population Growth 3 stages of population growth – theory of demographic transformation Stage 1: immediately prior to industrialization during which time birthrates are stable and are slightly higher than death rates. Stage 2: immediately following the initiation of industrialization during which time death rates fall dramatically with no change in birthrates. The reduction in mortality causes a rise in the population growth rate. Stage 3: involving large declines in the birthrate that exceed continued declines in the death rate. This period involves further increases in life expectancy, but smaller population growth rates than in stage 2. 6-36

37. + The Demographic Transition 6-37

38. + Problems to the theory Example: effect of HIV/AIDS on death rates. Demographic transition theory presumes that with development comes falling death rates and increasing life expectancy, producing an increase in population growth until the subsequent fall in birthrates AIDS  large increases in death rates and decrease in life expectancy is causing population to decline, not increase (Botswana, South Africa, Zimbabwe) Assumption: reductions in population growth rates accompany rising standards of living, at least in the long run 6-38

39. + And why not? Who has read Chapter 6? 6-39

40. + Economic approach to population control Is the current rate of population growth efficient? Sustainable? Issue of sustainability most easily dealt with in specific natural resource settings (eg – ability to produce sufficient food) – Let’s defer discussion To establish whether or not population control is efficient -> need to discover any potential behavioral biases toward overpopulation. Will parents always make efficient childbearing decisions? 6-40

41. + Will parents always make efficient childbearing decisions? No. 1. Childbearing decisions impose external codes outside the family 2. Prices of key commodities or services related to childbearing and child rearing may be inefficient 3. Parents may not be fully informed about or may not have reasonable access to adequate means for controlling births 6-41

42. + The Economic Approach to Population Control – two sources of market failure Congestion externalities will arise if more people are added to limited space. Congestion externalities are one source of market failure. These external costs are intensified if the resource base is treated as an open access, common pool resource. Income equality is a public good. High population growth may exacerbate income inequality. Due to external costs and benefits, decisions that may be optimal for individual families will result in inefficiently large populations. 6-42

43. + Subsidized food artificially lowers the cost of children. Tax financed education provides an incentive to have more children as the marginal cost of the education of an additional child is lower than the true social cost. Population control is a politically sensitive topic. 6-43

44. + What to do? Successful population control involves lowering the desired family size and providing sufficient access to contraception and family planning information. The economic approach to population control is aimed at indirectly lowering the desired family size. How? Identify those factors that affect desired family size and change those factors Major model => microeconomic theory of fertility (all other things being equal, the more expensive children become, the fewer will be ‘demanded’) 6-44

45. + The microeconomic theory of fertility This theory begins with the viewpoint children are consumer durables and the demand for them will be downward sloping. Other factors Kind of market? Status of parents? Infant mortality? Increased employment associated with development shared equally? Opportunity cost of mother’s time? Rural to urban migration? As in any market with a negative externality, reducing demand (marginal benefits) or raising marginal costs can move the equilibrium toward the economically efficient outcome. Women's income earning potential can be increased through investment in human capital or physical capital. Funds for investment, however, are needed from banks which require collateral. Do women own property? 6-45

46. + Yes… and No. Your exams…. The mean: 58% Highest grade: 89% Lowest grade: 44% You can’t see the exams until Jihane takes the exam on Tuesday. Wednesday, I will give the exams to you – and you will redo the exams. In the meantime… 6-46

47. + Homework: Due Wednesday. 1. The microeconomic theory of fertility provides an opportunity to determine how public policies that were designed for quite different purposes could affect fertility rates. Identify some public policies, for example, subsidies to people who own their own home, that could have an effect on fertility rates and describe the relationship. Identity the country whose policies you are examining. 2. Education is either funded by taxes or by tuition. Suppose that a community needs more money for education. If they raise the money from taxes or from increases in tuition, would the cost of education have the same effect on the desired number of children? Using the mirco-economic theory of fertility, trace the expected impacts. 3. “According to the theory of demographic transition, industrialization lowers population growth.” Discuss. 6-47