Econ 355W - A.

Karaivanov Lecture Notes on Population and Growth

Week 7 notes (TS ch. 6) — Population Growth and Development

(rough notes, use only as guidance)

• world population estimate 2010: 6.9 bln; projected at 9.2 bln in 2050

• overwhelming majority will be in the developing world

• should we worry? Or is this a fallacy.

• after all, the world population grew very little up until 1800 (when
economic growth was low) and then ‘exploded’ but at the same time the
world kept getting richer on average

1
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

1. The basic issue: population growth and the quality of life

• each year about 75 mln people added to the world population; 97% in
developing countries

• Some questions and worries from the l-re:

• does high population growth make it harder to provide social services;

transportation, sanitation, etc.

• population growth = increase in the labor force — employment?

• world food supply?

• relationship between poverty and family size

2
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

2. The facts

• very slow growth in population early on in history: 10,000 BC = 5 mln;

1750 = 728 mln (0.04% growth per year)

• then ‘explosion’ — see tables 6.1/6.2 and fig. 6.1; ‘hockey stick’ graph

• now rate of population increase is slowing

• why the big change: (Gapminder)

— decline in mortality (medicine, sanitation)

— decline in fertility — richer people choose to have less children

3
Table 6.1 Estimated World
Population Growth

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-5

Figure 6.1 World Population
Growth, 1750-2050

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-6

Table 6.2 World Population
Growth Rates and Doubling Times

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-7

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

3. Structure of the world population

3.1 by geographic region

3
• more than 4 live in developing countries

• Africa will grow the most till 1950 (184%)

• Africa, LA, Asia = 88% of world population in 2050 (70% in 1970)

• figure 6.3: each box is 1 mln people; notice the huge India; tiny Canada/
Russia

4
Figure 6.2 World Population
Distribution by Region, 2003 and 2050

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-9

Figure 6.3 The Population Map

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-10

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

3.2. fertility and mortality

• population increases due to natural increase (births and deaths) and net
migration

• birth rates in HICs are much lower than in LDCs (<15 per 1000 vs. up
to 40)

• decline in fertility rates in some countries (Table 6.3)

• TFR remains very high in some countries (Gapminder); 5.5 in SSA

• rapid narrowing of the gap in mortality rates between HICs and LDCs
(vaccination; sanitation); past 30 yrs reduced mortality rates in parts of
Asia and LA by 30-50%

• still — big differences in life expectancy at birth remain (SSA has lowest
at 48 yrs) — AIDS, high under-5 mortality

5
Table 6.3 Fertility Rate for Selected
Countries, 1970 and 2006

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-11

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

3.3. Age structure and dependency ratios

• very young population in developing world (29% of population is under

15 in LDCs; 35% excluding China) vs. 17% in HICs.

• thus — high youth dependency ratio = (people under 15) / (total

population) in LDCs — workforce must support twice as many children in
LDC vs HICs

• however, old age dependency ratio = (people over 65) / (total

population) is much higher in HICs (e.g., only 3% in SSA)

6
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

4. The momentum of population growth

• its tendency to continue even after birth rates have declined substantially

• Why? The age structure (fig. 6.4): if many young people born in the
past, even if they only have 2 children each, population will still grow a
lot (the ‘baby boom’ generation is similar); time needed for this effect to
work itself out through the population pyramid

• Figure 6.5 shows examples of how long would it take if a country reaches
replacement fertility for its population to actually stabilize

7
Figure 6.4 Population Pyramids:
Ethiopia and the United States, 2005

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-13

Figure 6.5 The Hidden Momentum
of Population Growth

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-14

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

5. The demographic transition (fig. 6.6)

• the process by which fertility rates eventually decline to replacement

levels (or below?) — observed in past 200 yrs or so, as countries develop
economically

• three stages:

— 1. slow growing population for centuries (high birth rates and high
death rates)
— 2. modernization (medicine advances, sanitation, nutrition) — 1850-
1890 for leading HICs; birth rates stay high but death rates decline;
DT begins here!
— 3. further modernization: death rates decline even more; birth rate
also starts falling rapidly

• why does the death rate pick up at the end? Older populations. . .

8
Figure 6.6 The Demographic
Transition in Western Europe

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-16

Figure 6.7 The Demographic
Transition in Developing Countries

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-17

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

• Figure 6.7 for developing countries: things happened much later, and
with much more variety in outcomes

• birth rates higher than in pre-industrial Europe (women marry younger)

• case A: Taiwan; China; S. Korea, Chile, etc. — rapid fall in population

growth

• case B: death rates stay high (poverty, AIDS) — SSA, some middle-East

9
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

THEORY

I. The Malthusian model (the ‘population trap’), 1798; figure 6.8

• assumption 1: if unconstrained population grows at a (geometric) rate

doubling every 30-40 yrs (e.g., as in 1, 2, 4, 8, . . . )

• assumption 2: due to diminishing returns on land; food expands at

arithmetic rate (e.g. constant amount added per year as in 1, 2, 3, 4,
...)

• because of the above: income per capita would fall to lead to a stable
population existing barely at the subsistence minimum

• Malthus’ conclusion: if want to avoid absolute poverty, need to engage

in ‘moral restraint’ and limit the number of children (does this remind
you of something?)

10
Figure 6.8 The Malthusian
Population Trap

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-19

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

• point A on fig. 6.8 is the Malthusian trap — it is a stable equilibrium;

above point A population growth outpaces the income growth rate and
we return back to point A.

• only way to go past point A is control the population growth rate (and
then you can go to e.g. point C);

• Malthus: talked about starvation, disease, wars as natural (positive)

checks on population growth

11
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

Criticisms:

1. Technological progress — Malthus was living in the ‘wrong time’, before

technological progress really took off

LDMR may hold as in the Solow model Y = Ak α but Malthus did not
expect that A can grow too (can get more output from the same amount of
inputs — land, labor, capital by using them in a more efficient way! Figure
6.9.

2. the assumption that rates of population increase are positively related to

income per capita; research shows that among LDCs this correlation is very
weak or does not exist (death rates fallen across the board; fertility rates
may differ a lot for given GDP p.c. level — see Gapminder)

3. per capita GDP may not be the principal determinant of population

growth rates (inequality, household incomes, other circumstances matter
much more)

12
Figure 6.9 How Technological and
Social Progress Allows Nations to
Avoid the Population Trap

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-21

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

II. Modern microeconomic theory of fertility

• not mechanistic as Malthus but looking at fertility as a rational decision

made by parents to maximize ‘utility from children’ (depending on the
benefits vs. costs)

• children as a ‘consumption’ good (in LDC also as ‘investment’ — labor;

insurance when old)

• demand for children a f-n of: (sign of effect in brackets)

— household income, Y (unclear: on one hand maybe children are a

normal good; but to earn higher income means higher opportunity
cost of time — less demand for children who are time-consuming)
— net price of children Pc (difference between benefits and costs)
(negative)
— prices of all other goods, Px (positive)
— ‘tastes’ for other goods relative to children (negative)

13
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

— the mortality rate (positive)

• e.g. increase in female employment opportunities increases the ‘cost’ of

children

• demand for children in developing countries (or historically) also viewed

as ‘investment’ — provide extra family labor (earnings); take care of you
at old age (no gov’t pensions, etc.)

• prediction: higher employment opportunities for women; gov’t social

pensions; urbanization — will reduce demand for children (costs increase,
benefits fall)

• thus, raising the ‘price’ for children (e.g. providing women with access
to education, jobs) will reduce birth rates

• The quality-quantity trade-off

14
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

• Nobel winner G. Becker postulated the idea that with increase in income
and falling mortality risk parents prefer to have less higher quality (better
educated, richer) children as opposed to higher quantity (which is more
useful at low incomes; high mortality rates)

15
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

6. Empirical evidence:

• shows that education/ job opportunities for women associated with less
children as the theory predicts

• better public health associated with less children too

16
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

7. Conclusions

• the following factors lead to decreased birth rates:

1. increase in the education of women

2. increase in female non-agriculture wage employment opportunities

3. rise in family income

4. reduction in infant mortality

5. development of old-age and social security safety nets

6. expanded schooling opportunities (to exploit the quality-quantity

trade-off)

• of course, information about birth control practices would help too

17
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

IS POPULATION GROWTH GOOD OR BAD?

1. Population growth as a problem?

• a mechanical view: if Y is fixed, less N makes Y/N higher. . .

• as if population growth is something exogenous that just happens,

without voluntary choice

• dire predictions about running out of food, apocalyptic scenarios (P.

Ehrlich, etc. — see Easterly’s chapter 5).

• the basic Malthusian argument: higher population growth leads everyone

to misery. . .

• poverty causes large families causes poverty. . .

18
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

• unemployment will soar, no jobs for all these people (the ‘lump of labor’
fallacy again. . . ); assumes each additional person has zero productivity!
Ridiculous.

• call for ‘family planning programs’ — extreme constraints on people’s

liberty and choice (e.g. the one-child policy in China)

• it is true that under absence of technological progress, LDMR will make

Y/N decline as N grows. But why should this be the case?

• Dubious empirical support on any of these propositions: correlation

between population size and income per capita is not negative
(Gapminder)

• also, the richer a country gets, the lower population growth

19
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

2. Not a problem!

• high population growth is a symptom of poverty, not a cause! Other

issues (this course goes over many) are the cause. Once the latter are
removed, the country grows and population growth falls.

• ‘conspiracy theories’ — population control deliberately pushed by HICs —

no, I don’t think so

• population growth as desirable phenomenon:

— people needed to work — younger populations have higher workforce
(India vs. China in next 20-30 years)
— old-age dependency ratios and the associated health and pension bills
may be a much bigger problem (as some HICs start to realize)
— prices will adjust to any population pressures (e.g. food scarcity) and
this will restore equilibrium (increase costs of children)
— studies show only 10-20% of arable land used in SSA, LA — so this is
not an issue

20
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

— technology will resolve any problems, if any (e.g. there will be

big incentives to find alternative food sources if suddenly this
becomes a problem); population growth putting stress on resources
facilitates/spurs innovations that make us save those resources!

21
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

POLICY

• Table 6.4 shows a lot of countries adopted family-control policies

• range from providing incentives to have less children to outright coercion

(China, India)

• examples in Singapore (first promoted less children, now more)

• issues: think of the dependency burden down the line; China’s preference
for boys — sex ratio imbalance becomes even stronger; TFR in China now
at 1.6 (population still grows but only because of momentum).

• increasing education and employment opportunities for women

22
Table 6.4 Countries Adopting Family-
Planning Programs, 1960-1990

Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 6-32

Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

EASTERLY: “development is the best contraceptive”

• show Gapminder on Thailand, India, etc. in 80s onwards

1. the ‘cash for condoms’ panacea

• Paul Ehrlich’s book The Population Bomb (1968) predicted famines

swiping Africa, LA, Asia wiping 1/5 of the population
— 1960s — 1 of 10 countries was having a famine at least once per
decade; in 1990 — only one of 200 countries had a famine
— global population doubled 1960-1998 but food production tripled!
— food prices have fallen by 50% (in real terms) over past 2 decades
— based on a false premise — the 150 mln people who have unmet need
for contraception would stop having babies as soon as condoms were
available
— an unwanted child is far more expensive than a condom
— Pritchett- number of desired children per woman basically equals the
actual number of children

23
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

2. the data:

• the negative views on population growth suggest that countries that have
higher pop. growth should have low or negative GDP growth per capita

• easily testable, result: no evidence that population growth affects per

capita growth (fig. 5.1)

• historically — population growth and GDP growth accelerated jointly after

the Industrial revolution, then fell jointly — definitely no negative effect
here too.

• changes in population growth too small relative to changes in GDP p.c.

growth

24
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

3. externalities?

• a possible argument against population growth is that families do not

take into account the negative externalities they impose on others when
deciding how many children to have — e.g. environment, crowding the
cities, etc.

• *BUT, there are also positive externalities associated with more people:
more taxpayers, more potential “geniuses”; only higher population density
make some things possible (e.g. transition to agriculture; internet?)

• overall: subsidizing condoms is not the way to go (very small factor)

• should countries pursue population policies? Unclear — many possible

benefits for each possible cost.

25
Econ 355W - A. Karaivanov Lecture Notes on Population and Growth

Suppose however a country wants to reduce population growth for whatever

reason — what is the best policy?

• Answer: DEVELOPMENT!

• parents in richer countries have less children — Becker: the increase in

opportunity cost of time which high wages bring lead to less children

• Lucas: extensive vs. intensive growth; at first income and population

grew at the same time (more output created by more people). But
gradually, by LDMR, pushing technology makes investment in human
capital more profitable than investing in extra worker — “intensive growth”
starts with each (more skilled) worker producing more.

• the lesson — give incentives to invest in (more skilled) people — e.g.

the conditional transfer policies in Mexico, Brazil where money is given
to mothers conditional on keeping children in school (addresses both
empowering women and education)

26