Population Growth and Economic Development Causes, Consequences, and Controversies 2/16/20161 Pertemuan 6: Population and Economic Development

Outline Trends in population growth Definitions and concepts The hidden momentum of population growth The demographic transition Effects of Population growth on economic development: Conflicting views 2/16/20162

Population Growth and Quality of Life Will developing countries be able to extend the coverage and improve the quality of health care and education in the face of rapid population growth? 2/16/20163

World Population Growth Rates and Doubling Times PeriodGrowth rate (%) Doubling time (years) Present /16/20164

Population Growth Rates in Developed and Countries, /16/20165

Geographical distribution of population 2/16/20166

Population: Historical and geographical trends 2/16/20167

Concepts and definitions (1) Birth rate: 20 per 1,000, 20 newborn babies for every 1000 population Death rate: 14 per 1,000, an average of 14 people die for 1,000 population Natural increase: birth rate minus death rate, in the example, 6 per 1,000 or 0,6% per annum Rate of population increase: the percentage yearly net relative change in population, due to natural increase and net international migration.. 2/16/20168

Concepts and definitions (2) ASDR: average no. of deaths per year for every 1,000 members of the population in a particular age group ASBR: average no. of births per year for every 1,000 members of the population in a particular age group 2/16/20169

Concepts and definitions (3) ASFR: average no. of children per year born to women in a particular age group Total fertility rate (TFR): the average number of children a woman would have, assuming that the current age-specific birth rates remain constant throughout her childbearing years (15-49 years of age). 2/16/201610

Concepts and definitions (4) Dependency burden: –Youth dependency ratio –Old age dependency ratio 2/16/201611

Echo effect/hidden momentum The youth dependency gives rise to the hidden momentum of population growth. It is a dynamic latent process of population growth where population continues to grow despite a fall in birth rate due to larger number of child bearing couples. Why? High population growth in the past led to a young age distribution, then a large fraction continues to be at the age where they are just about to marry and have families 2/16/201612

Population Pyramids: Less Developed and More Developed Countries; /16/201613

Hidden Momentum of Population Growth 2/16/201614

The Demographic Transition (1) 2/16/201615

The Demographic Transition (2) 2/16/201616

FROM POPULATION TO ECONOMIC DEVELOPMENT 2/16/201617

Effect of population growth on economic growth Population Resources Resources: Human Resources (HR) Natural Resources (agricultural land; forests, mineral) (NR) Man-made Resources (Capital Formation) (CR) 2/16/201618

Effects of Population Growth on Economic Growth Population growth restricts economic growth –The “pessimistic” theory Population growth promotes economic growth –The “optimistic” theory Population growth is independent of economic growth –The “neutralist” theory 2/16/201619

Effects of Population Growth on Economic Growth: Pessimists Negative consequences of population growth –HR: underutilised, becomes constraints, liability, consumes, does not produce; constraints of the development of human resources (education and health) -NR: agricultural land cannot increase; deforestation; depletion of mineral resources - CR: constraints on the development of resources for increasing productive capacity 2/16/201620

Malthusian View (1) Population tends to grow at a geometric rate, doubling every 30 to 40 years Food supplies only expand at an arithmetic rate due to diminishing returns to land (fixed factor) Malthusian population trap: countries would be trapped in low per-capita incomes (per capita food), and population would stabilize at a subsistence level 2/16/201621

Malthusian View (2) Higher economic growth increases population by stimulating earlier marriages and higher birth rates, and cutting down mortality from malnutrition and other factors Higher population also depresses economic growth through diminishing returns A stationary population in the long-run equilibrium 2/16/201622

Pessimists: Unfounded WHY? Developed economies: High level of economic growth Population increased But, the real GDP per capita also increased 2/16/201623

Effects of Population Growth on Economic Growth: Optimists (1) Population is not the problem but the following are, e.g.: –Underdevelopment (culture, e.g) –Resource depletion and environmental degradation –Population distribution –Subordination of women 2/16/201624

Effects of Population Growth on Economic Growth: Optimists (2) Positive effects of population growth: –HR: enlarge labour force, fully and efficiently utilised, increases economic growth –Provides a large domestic market for the economy –Encourages competition, which induces technological advancements and innovations 2/16/201625

Effects of Population Growth on Economic Growth: Neutralists No statistical relationship between population and economic growth. Developing countries can take advantage of the demographic dividend. 2/16/201626

Effects of Population Growth on Economic Growth: Conclusion NO CONSENSUS WHETHER POPULATION GROWTH IS BENEFICIAL OR DETRIMENTAL TO ECONOMIC GROWTH IN DEVELOPING ECONOMIES 2/16/201627

Demographic Dividend (1) Variation in productivity with age Variation in consumption with age Changes in population age structure The divergence between production and consumption interacts with changes in population age structure demographic dividend 2/16/201628

Demographic Dividend (2) First dividend: changes in population age structure that increase the share of population concentrated at the productive ages How to quantify the first dividend Support ratio: the ratio of effective number of producers to the effective number of consumers 2/16/201629

Demographic Dividend (3) Example: East Asia: A ‘baby boom’ generation was created, once it reached working age, it boosted saving rates and also the size of labour force; from 1965 to 1990, the working-age population grew by 2.6%/year and the dependent population by just 1.0%/year. This demographic dividend explains up to 33% of East Asia’s economic miracle between /16/201630

Demographic Dividend (4) Second dividend: population ageing, given appropriate policy and institutional arrangements, may arise, as changes in age structure can influence the process leading to the creation of wealth One possibility: population ageing a rapid accumulation of capital raise labour productivity (output/worker) 2/16/201631

Effects of Population Growth on Economic Growth: Conclusion A large population growth could have both negative and positive impacts on productivity Net relationship between greater population and economic growth depends on whether the inducement to human capital and expansion of knowledge are stronger than diminishing returns to natural resources 2/16/201632