Introduction
Economic growth is dependent on a wide array of factors that range from technology to capital. Of particular interest is the rate of population growth vis-à-vis economic growth and development. Various economic models have attempted to establish the relationship between different demographic dynamics and economic growth (Barro 1991, p. 87).
While some economists postulate that economic development slows down in periods of high population growth rates, others argue that high population growth boosts economic growth. This paper discusses such factors as age structure, level of economic development, population density and rates of poverty in addition to their impacts on economy. Besides, the paper utilizes various theoretical frameworks that establish the correlation of population dynamics and economic growth.
Relationship between Population and Economic Growth
The relationship between population and economic growth has many perspectives. Various economists have developed models to explain the correlation between population and economic growth (Gonzalo 1994, p. 67). Malthus was among classical economists who attempted to explain the relationship. He claimed that increase in population could surpass the level of production in an economy leading to poverty (Jones 2002, p. 45).
The rationale is that population grows in geometrical way while productivity improves in an arithmetic rate. This does not only lead to poverty but also inefficiencies and diminished productivity. To that end, it is important to highlight that the relationship between population and economic growth has elicited heated debate (Weil 2009, p. 71).
Some schools of thoughts believe that there is a positive correlation between population and economic growth. Opponents argue that population growth complements the economy in the sense that there is a high number of skilled and talented laborers in an economy (Jayati 2013, p. 81). This in turn leads to increased productivity and production of goods and services across entire economic spectrum.
Other theorists have attempted to distinguish economic growth and population dynamics. Neo-classical theorists such as Solow differentiate various aspects of societies in order to establish accurate correlations and relationships (Thirlwall 1994, p. 132). In particular, Solow claims that high population growth in a steady state is likely to reduce disposable income and income per capital. Nonetheless, population growth does not affect the rate of economic growth in steady states (Jayati 2013, p. 76).
Consequently, Solow argues that the rate of population growth will be equal to the rate of economic growth in steady states. While neo-classical theorists classify states and nations in order to understand interplay between demographic dynamics and economy, other models use age structure of a nation to predict the effects of population growth/decrease in an economy.
According to Jones (2002, p. 67), industrialized nations have distinct age structures when compared to developing economies and nations. While majority of the population has reached adulthood in industrialized countries, children and young people constitute highest majority of developing countries’ population.
On the one hand, age structure in industrialized nations is major cause for skewed relationship between population growth and economy (Aliber 2001, p. 36). For instance, United Nations Report on global population growth indicates that aging will be a major driver of economic slowdown in many industrialized nations in the world by 2050 (Eastwood & Lipton 2001, p. 33).
The reason is that high number of working population will age out leading to a deceleration in productivity. It is important to point out that young population will not be in a position to meet the needs of the aging population.
This will not only lead to high rate of dependency but also high cost of caring for the aged populace (Weil 2009, p. 87). The government will also increase its funding towards social welfare programs to take care of its aging population.
In a country where government is attempting to cut down its expenditure, aging population will lead to slower economic growth because of high rate of dependency. To that end, population growth in such countries as Britain and United States is likely to accelerate economic growth and prosperity.
On the other hand, age structures in developing countries impede economic progress in third world. The rationale is that population growth will exert pressure on already scarce economic resources. As elucidated by Kohler & Kohler (2002, p. 56), high rates of population growth as witnessed in many African countries will lead to unsustainable economic development and growth. This is because many African economies are dependent on cultivation and agriculture (Jones 2002, p. 62).
An increase in population will imply that expansive agricultural activities and extraction of resources will increase at the expense of environment. It may also lead to deforestation and increased degradation of natural resources.
To that end, environmental degradation leads to agricultural stagnation that in turn affects the economy in a negative way (McCulloch & Baulch 2000, p. 102). Malthus asserts that social expenditure by government on young age structure at the expense of capital investment will also stall the economy (Weil 2009, p. 102).
While many economists argue that high population growth rates in developing countries have a counterproductive effect on the economy, it is apparent that increase in population is important for developing countries. According to Murthi & Drèze (2001, p. 45), a rise in population growth in developing countries implies that the economy will benefit from diverse workforce and vibrant labor market. In countries that have adopted labor-intensive model of production, population growth boosts productivity.
In such countries as China and India, the high rate of population growth has complemented economic growth rate (Drèze & Sen 1995, p. 38). In addition, it is essential to mention that a high rate of population growth offsets the risk of increased dependency emanating from the aging population (Kremer & Chen 2002, p. 34-89). As such, population growth plays a significant in enhancing steady development and economic growth in third world.
Kremer & Chen (2002, p. 56) articulate that population growth has a direct relationship with poverty rates in a country. Undoubtedly, level of poverty is a major indicator of economic growth and development in a country. Bourguignon (2001, p. 112) says that countries with high population growth rates have high rates of fertility.
However, fertility rates are dependent on incomes, literacy and inequalities that typify an economy. For instance, countries that experience high rates of income inequalities exhibit fertility discrepancies between poor uneducated people and rich and literate people (O’Sullivan 2003, p. 57).
The rationale is that affluent members of society tend to bear few children, which increases their likelihood of becoming literate and wealthy. Conversely, poor and probably uneducated members of the society have high fertility rates implying that they have many children who join vicious cycle of poverty (Lee 2003, p. 75).
To this end, high population growth rate in countries that have alarming levels of income inequalities tends to increase levels of poverty in the population. Governments therefore increase their social expenditure on poverty eradication and health at the expense of capital investments. This implies that population growth in income unequal countries is not only detrimental for the economy but it also threatens social stability.
Population density is another parameter that theorists use to establish correlation between population growth and economic growth. It refers to the number of people living within one square kilometer. Malthus asserts that countries with low population density experience many challenges (Kelley & Schmidt 1995, p. 67). At the outset, innovation and technology tend to spread slowly owing low contact between social institutions, individuals and economic institutions (Meier 1995, p. 34).
Due to little contact that is apparent in sparsely populated societies, negative ethnicity increases and persists for a long period. Besides, governments of such societies face constraints in provision of public goods such as infrastructure and electricity due to minimal and expensive interaction with the rest of the world (Solow 1956, p. 67).
On the other hand, high population density allows fast and efficient flow of innovation, creativity and technology leading to increase in uptake of modern ways of production (Kelley & Schmidt 2005, p. 56). This does not only boost economic growth but also enhances capital investments. It is important to highlight that high population density may also lead to environmental degradation and other effects of overutilization of resources.
Conclusion
In summary, population growth has a direct relationship with economic growth. Various economists classify different nations according to levels of economic development (developed or developing), population density, age -structure and income inequalities in order to establish the apparent correlation.
Population growth leads to economic growth in industrialized nations that have high population density. However, economic growth stalls in poor and unequal countries due to high rates of poverty and sparse population.
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