Without productivity gains, any growth in GDP is exactly offset by population growth, and the average income stays the same.
Economic Growth in Developing and Transitional Economies
(Part C)
by
Charles Lamson
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Issues in Economic Development
Every developing nation has a cultural, political, and economic history all its own and therefore confronts a unique set of problems. Still, it is possible to discuss common economic issues that each nation must face in its own particular way. These issues include rapid population growth and growing debt burdens. Population Growth Concern over world population growth is not new. The Reverend Thomas Malthus (who became England's first professor of political economy) expressed his fears about the population increases he observed 200 years ago. Malthus believed populations grow geometrically---at a constant growth rate: Thus the absolute size of the increase each year gets larger and larger but that food supplies grow much more slowly because of the diminishing marginal productivity of land. These two phenomena led Malthus to predict the increasing impoverishment of the world's people unless population growth could be slowed. Malthus's fears for Europe and America proved unfounded. He did not anticipate the technological changes that revolutionized agricultural productivity and the eventual decrease in population growth rates in Europe and North America. Nevertheless, Malthus's prediction may have been right, only premature. Do the circumstances in the developing world now fit his predictions? Although some contemporary observers believe the Malthusian view is correct and the Earth's population will eventually grow to a level that the world's resources cannot support, others say technological change and demographic transitions (to slower population growth rates) will permit further increases in global welfare.  The Consequences of Rapid Population Growth We know far less about the economic consequences of rapid population growth than you might expect. Conventional wisdom warns of dire economic consequences from the developing nations' "population explosion," but these predictions are difficult to substantiate with the available evidence. The rapid economic growth of the United States, for example, was accompanied by relatively rapid population growth by historical standards. Any slowing of population growth has not been necessary for the economic progress achieved by many of the newly industrialized countries. Nonetheless, population expansion in many of today's poorest nations is of a magnitude unprecedented in world history. Because growth rates like these have never occurred before the twentieth century, no one knows what impact they will have on future economic development. However, a basic economic concern is that such rapid population growth may limit investment and restrain increases in labor productivity and income. Rapid population growth changes the age of a population, generating many dependent children relative to the number of productive working adults. Such a situation may diminish saving rates, and hence investment, as the immediate consumption needs of the young take priority over saving for the future. Even if low saving rates are not a necessary consequence of rapid population growth, as some authorities contend, other economic problems remain. The ability to improve human capital through a broad range of programs, from infant nutrition to formal secondary education, may be severely limited if the population explosion continues. Such programs are most often the responsibility of the state, and governments that are already weak cannot be expected to improve their services under the burden of population pressures that rapidly increase demands for all kinds of public goods and services. Causes of Rapid Population Growth Population growth is determined by the relationship between birth and death---that is, between fertility rates and mortality rates. The natural rate of population increase is defined as the difference between the birth rate and the death rate. If the birth rate is 4 percent, for example, and the death rate is 3 percent, the population is growing at a rate of 1 percent per year.  Historically, low rates of population growth were maintained because of high mortality rates despite high levels of fertility. That is, families had many children, but average life expectancies were too low, and many children (and adults) died young. In Europe and North America, improvements in nutrition, and public health programs (especially those concerned with drinking water and sanitation services), and in medical practices have led to a drop in the mortality rate and hence to more rapid population growth. Eventually fertility rates also fell, returning population growth to a low and stable rate. Public health programs and improved nutrition over the past 50 years have brought about precipitous declines in mortality rates in the developing nations also. However, fertility rates have not declined as quickly, and the result has been high natural rates of population growth. Reduced population growth depends to some extent on decreased birth rates, but attempts to lower fertility rates must take account of how different cultures feel and behave with regard to fertility. Family planning and modern forms of birth control are important mechanisms for decreasing fertility, but by themselves have had rather limited success in most countries where they have been tried. If family planning strategies are to be successful, they must make sense to the people who are supposed to benefit from them. The planners of such strategies must understand why families in developing nations have so many children. To a great extent, in developing countries people want large families because they believe they need them. Economists have attempted to understand fertility patterns in the developing countries by focusing on the determinants of the demand for children. In agrarian societies, children are sources of farm labor, and they may make significant contributions to household income. In societies without public old-age support Social Security programs, children may also provide a source of income for parents who are too old to support themselves. With the high value of children enhanced by high rates of infant mortality, it is no wonder that families try to have many children to ensure that a sufficient number will survive into adulthood.  Cultural and religious values also affect the number of children families want to have. But the economic incentives to have large families are extremely powerful. Only when the relationship between the costs and benefits of having children changes will fertility rates decline. Expanding employment opportunities for women in the economy increases the opportunity costs of child-rearing (by giving women a more highly valued alternative to raising children) and often leads to lower birth rates. Government incentives for smaller families, such as subsidized education for families with fewer than three children, can have a similar effect. In general, raising incomes appear to decrease fertility rates, indicating that economic development itself reduces population growth rates. Economic theories of population growth suggest that fertility decisions made by poor families should not be viewed as uninformed and uncontrolled. An individual family may find that having many children is a rational strategy for economic survival given the conditions in which it finds itself. This does not mean, however, that having many children is a net benefit to society as a whole. When a family decides to have a large number of children, it imposes costs on the rest of society; the children must be educated, their health provided for, and so forth. In other words, what makes sense for an individual household may create negative effects for the nation as a whole. Any nation that wants to slow its rate of population growth will probably find it necessary to have in place economic incentives for fewer children as well as family planning programs.  *CASE & FAIR, 2004, PRINCIPLES OF ECONOMICS, 7TH ED., PP. 738-740* end |
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