Economic Growth and Population Growth:

A Puzzling Evidence

This paper examines the evolution of population and economic growth. Start from the classical period to the recent literature on endogenous growth and development. The literature on population and economic growth is about as old as economic science itself.

Adam Smith's inquiry has been concern about the conditions governing wealth accumulation, or growth in aggregate production capacity, he and even others before him realized that the relevant growth measure concerns per capita, rather than aggregate output. Malthus dramatized the idea by identifying population as potentially detrimental to growth. Since that time, work on growth and development has been inextricably linked with population economics.

n the Classical model of Malthus and Ricardo, growth is constrained by an inelastic supply of natural resources. In the Neoclassical model, economic growth is constrained by the rate of growth of the labor force (Solow 1956; Prescott 1988). In both model the constraints on growth were released by exogenous technical change. In the new Growth Economic, the constraints are released by endogenous technical change driven by the accumulation of knowledge and human capital (Romer 1986, 1990, 1994; Lucas 1988, 1993).

THEORETICAL LITERATURE

Keynesian

Hansen

's analysis of the effects of declining population growth in many way. According to Hansen, a demographic slowdown decreases opportunities for profitable investments and increases levels of attempted saving, hence pushes the economy toward a low-growth equilibrium at which resources are underutilized and unemployment is high. Hansen puts special emphasis on demographically induced shifts in the composition of output. He suggests that, beyond its direct positive effect on investment and output, population growth also has an indirect enhancing effect on these factors by facilitating technological progress

In his policy proposals Hansen was more interventionist than Keynes, advocating a more intrusive government role in the economy as a possible means of escaping the vicious cycle of low demand and high unemployment. As to government action to reverse demographic trends seen as deleterious, neither Keynes nor Hansen argued for policies to increase fertility, presumably because they saw them as both inappropriate and, in comparison to remedial economic policy measures, inefficient or unfeasible.

The effect of population growth upon capital formation, it is necessary to consider the role it plays in conjunction with other factors in the widening and deepening process. The widening of capital is a function of an increase in final output, which in turn is due partly to an increase in population and partly to an increase in per capita productivity, arising from causes other than a larger use of capital per unit of output.

On the other hand, the deepening of capital results partly from cost-reducing changes in technique, partly (though this is probably a much less significant factor) from a reduction in the rate of interest, and partly from changes in the character of the output as a whole, with special reference to the amount of capital required to produce it.

Why is been popular in these time being?

The growth-promoting recipes favored in the last decades of the century (especially in the most successful developing economies) were anything but Keynesian: limited government, fiscal restraint, and globalization.

Adam Smith

Adam Smith

regarded growth of population as at once a consequence and a cause of economic progress. Increasing division of labor would, he argued, bring about greater productivity, and this would furnish enlarged revenue and stock, from which would flow an enlarged wages fund, an increased demand for labor, higher wages, and so economic conditions favorable for population growth. Now a growing population, by widening the market and by fostering inventiveness, in turn facilitated, he thought, division of labor and so the production of wealth. Thus Adam Smith arrived at conclusion. Population growth, he held, stimulated progress and this in turn stimulated further growth and expansion

Thomas Malthus

In this model, growth in food production is determined exogenously, and the long-run rate of population growth must simply adjust to it because of the tendency of population to explode at a dismally low level of consumption. Per capita income is trapped at a corresponding dismal level. In the short run, however, the model predicts a positive association between deviations of per capita income and the rate of population growth from their long-run values.

The pessimistic implications of the Malthusian theory of population about the prospects of growth and prosperity have led many of its followers, beginning with John Stuart Mill, to advocate government interference in the form of population control policies. Such policies have also been advocated in recent years by some demographers and policy makers. lo Government interference has been justified on the normative argument that the exercise of free choice by parents does not necessarily lead to socially optimal outcomes, as well as on the positive argument that since per capita income is nothing but the ratio of output to population (q = Q/N),an effective way of permanently uplifting the latter above a miserable level of subsistence would be to lower the denominator. Both ideas have been challenged repeatedly in the modern economic literature.

EMPIRICAL LITERATURE

1) Study by Hagen (1959), the average growth of world population from the beginning of the Christian era to 1650 was in the neighborhood of & percent per year. It then began to rise, first in Western Europe. In England, population doubled in the two centuries prior to the Industrial Revolution, yielding an average rate of increase of 0.35 percent

2) Rostow

(1990), using data for the year 1965 from 76 countries, found that birth rates are negatively and significantly correlated with per capita GNP. He also found a similar negative correlation between death rates and per capita GNP. These observations suggest that as a country develops, both fertility and mortality rates tend to go down.

3) Ehrlich and Lui

(1991) have investigated the empirical relationship between young-age longevity, old-age longevity, the overall growth rate of per capita income, g, and alternative measures of fertility, using a cross-section of international data for the period 1960-1985. They find that young-age longevity, measured by the probability of survival in the age group O-25, has a negative effect on both the birth rate and thewhile old-age longevity, measured as the conditional probability of survival in the age group 50-75 , has virtually no effect on these two variables. They also find that a 1 percent increase in x1 has a significant and more sizeableeffect on the growth rate of per

capita income, g, than a corresponding increase in x2

Causal Relationship

A recent study by Kremer (1993), using very long time series, argues that historically, when the level of per capita income was low, the population growth rate, n, was proportional to its level, N, until world population reached about 3 billion. Kremer also argues that a high N may be conducive to income growth (see Section 5.4 below). This is hardly indicative of any direct causal relationship between N and Q/N or between n and g, however, partly because of the need to distinguish movements in n that are caused by those in either b or d.

For example, historical evidence indicates that the level of per capita income in peasant societies had not risen before the rise in the population growth rate. In these societies, death rates had been as high as birth rates. Where population growth occurred, it occurred because death rates fell.

Other studies have dealt more directly with the causal relationship between population and per capita income. According to Coale and Hoover's pioneering study (1958), a high rate of population growth is not supported by a corresponding increase in investment that maintains per capita income intact. A high fertility rate increases the dependency burden and lowers private savings and investment rates. There is therefore a fall in the ‘per capita consumer equivalent' income.

Moreover, Ram and Schultz (1979). Using Indian data from the 1950s to the 197Os, they conclude that over that period, there were large increases in life expectancy of youth and adults as age-specific death rates declined sharply. The observed sequence was improvement in health, fall in mortality, increase in life span, modest decline in fertility, and increase in population. During that period, India also experienced an impressive increase in investment in schooling. Treating the latter as part of the economy's overall capital formation, investment and savings were found to have risen appreciably faster than national income. Improvements in health also raised productivity. The Indian data thus support the proposition that, partly because of the large increase in health and longevity, the growth in population does not result in a decline in savings and capital formation

Notestein (1945) argues that fertility was high in pre-modern society because of religious beliefs, moral codes, and related factors. High fertility was also necessary to offset the high mortality rate. But the evolution of cities with large and mobile populations altered the situation by shifting the family-based life style to one centered on individualistic aspirations which bring fertility down

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