Rift Valley University

Article Review
On
<The Role of Population in Economic Growth>

Submitted by: Beshadu Berhanu

ID#: 0137

Nov. 2019
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I. Abstract
The relationship between population growth and economic growth is controversial. This
article draws on historical data to chart the links between population growth, growth in per
capita output, and overall economic growth over the past 200 years. Low population growth
in high-income countries is likely to create social and economic problems while high
population growth in low-income countries may slow their development. International
migration could help to adjust these imbalances but is opposed by many. Drawing on
economic analyses of inequality, it appears that lower population growth and limited
migration may contribute to increased national and global economic inequality.
II. Introduction
The relationship between population growth and growth of economic output has been
studied extensively (Heady & Hodge, 2009). Many analysts believe that economic growth in
high-income countries is likely to be relatively slow in coming years in part because
population growth in these countries is predicted to slow considerably (Baker, Delong, &
Krugman, 2005). Others argue that population growth has been and will continue to be
problematic as more people inevitably use more of the finite resources available on earth,
thereby reducing long-term potential growth (Linden, 2017). Population growth affects
many phenomena such as the age structure of a country’s population, international
migration, economic inequality, and the size of a country’s work force. These factors both
affect and are affected by overall economic growth. The purpose of this article is to use
long-term historical data and a review of both theoretical and empirical work on the
relationship among growth of population, total output and per capita output to assess the
implications of their evolution for economic inequality, international migration policies, and
general economic growth. In his important book on inequality, Thomas Piketty (2014)
observes that economic growth “. . . always includes a purely demographic component and
a purely economic component, and only the latter allows for an improvement in the
standard of living” (p. 72). Economic growth is measured by changes in a country’s Gross
Domestic Product (GDP) which can be decomposed into its population and economic
elements by writing it as population times per capita GDP. Expressed as percentage
changes, economic growth is equal to population growth plus growth in per capita GDP.
GDP is a measure of economic output and is also an indicator of national income which
can be defined as total output net of capital depreciation plus net income from sources
outside the country (Piketty, 2014, p. 45). Piketty (2014, p. 73) points to evidence that
average annual world economic growth between 1700 and 2012 was 1.6% made up of
equal parts population growth and per capita output growth of 0.8% each.
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III. Discussion
1. Statistical Evidence on the Growth of Population, Per Capita Output,
and GDP
Population and migration projections are from the U.S. Census Bureau (2017). Average
annual compound growth rates are calculated using the formula: V = Aert where V is the
final value, A the initial value, r the rate of growth, t the number of years, and e is the
exponential.
Average annual compound growth rates for population, real GDP, and real per capita GDP
in various regions and countries from 1820 to 2010 are shown. Average annual world
population growth over this period was about 1% but has varied considerably across
regions and over time. Europe and the countries formerly included in the Soviet Union had
relatively slow population growth overall with levels that were lower in the 20th century than
in the 19th. One reason for slower population growth in Europe was the substantial
emigration to Latin America and the “western offshoots” where high population growth rates
were recorded between 1820 and 1913. While European population growth rates slowed
during the period 1913 to 2010, they accelerated somewhat in Africa, Asia, and Latin
America. Note that a constant annual population growth rate of 1% means that population
doubles every 69.3 years. World population in 1820 was just over a billion people
compared with about 6.9 billion in 2010 (World Economics, 2016 and World Bank, 2017).
Average annual growth of per capita GDP also increased during the period 1913 to 2010
which, when combined with generally higher population growth rates, led to significant
overall economic growth, over 3% per year for the world. In China, for example, average
annual population growth between 1990 and 2015 was only 0.76%, perhaps as a result of
that country’s former policy of limiting families to one child, while average annual per capita
GDP growth was 8.72% for an overall economic growth rate of 9.48% per year. Similar
results are found for India and Indonesia although population growth in these countries has
been much higher than in China. It is also interesting to note the more recent acceleration
of per capita economic growth in developing countries. For the decade of the 1990s, annual
growth in per capita output in these countries averaged 1.37% compared with a rate of
4.15% for the period 2000-2015. These results are undoubtedly influenced by the
exceptional economic performance in China and other large emerging economies although
economic growth also picked up in many low-income countries. Population growth slowed
slightly between these two periods in all regions except Sub-Saharan Africa where negative
growth in per capita GDP during the 1990s shifted to a much higher rate of 2.29% for the
period 2000 to 2015 and an overall economic growth rate for this period of almost 5%. Per
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capita GDP growth increased substantially in Asia and somewhat less in Latin America
between these two periods.
2. The Relationship Between Economic Growth and Population Growth
Baby booms are characterized by relatively short periods of increased fertility which can
lead to greater population growth. In the United States, the U.S. Census Bureau counts the
baby boom as lasting from July 1, 1946 to July 1, 1964 (Colby & Ortman, 2014). During this
period, the average annual U.S. population growth rate was 1.70% which is higher than the
average of 1.29% for the 20th century. Per capita GDP growth for these years was 1.82%,
about the same as the average annual growth rate of 1.87% for the period 1946 to 2010
(The Maddison Project, 2013). High population growth rates mean that the average age of
a population will be young and there will be high dependency rates. Forty-three percent of
the population in sub-Saharan Africa, where population is growing 2.7% per year, is under
the age of 15 while only 3% is over 65. In Japan, where population growth is negative, 13%
of the population is under age 15 with 26% over 65 (World Bank, 2017). As dependents,
the large number of children in sub Saharan Africa will slow growth but once they enter the
labor force, these countries can expect to reap a “demographic dividend” that will enhance
economic growth. This dividend could be diminished if countries in sub-Saharan Africa do
not complete the demographic transition to lower population growth rates in coming years.
IV. Conclusion
Most of the work reviewed in this article supports the idea that population growth is an
important factor in overall economic growth and contribute to increased growth in per capita
output in some cases. In low-income countries, rapid population growth is likely to be
detrimental in the short and medium term because it leads to large numbers of dependent
children. In the longer run, there is likely to be a demographic dividend in these countries
as these young people become productive adults.In high-income countries, population
growth is low and, in some cases, negative giving rise to age structures with a high
proportion of elderly people in the population. Economic growth in low-income countries is
crucial for raising living standards and reducing global disparities between the more
prosperous industrialized countries and those in which poverty and low standards of living
are still rife (Milanovic, 2016). Because population growth plays an important role in overall
economic growth, the evolution of world population will continue to be a major global
concern.
V. Reference
Atkinson, A. B. (2014). After Piketty? The British Journal of Sociology, 65, 619-638. Baker, D.,
Delong, J. B., & Krugman, P. R. (2005). Asset returns and economic growth. Brookings Papers on
Economic Activity, 1, 289-330. Banerjee, R. (2012). Population growth and endogenous
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technological change: Australian economic growth in the long run. Economic Record, 88, 214-228.
Becker, G. S., Laeser, E. L., & Murphy, K. M. (1999, May). Population and economic growth.
American Economic Review, 89(2), 145-149.