chapter 1: population growth and economic development 1... · chapter 1: population growth and...

Chapter 1: Population Growth and EconomicDevelopment

Harvard Kennedy School

PED 365, Spring 2011

(Harvard Kennedy School) Hillel Rapoport PED 365, Spring 2011 1 / 33

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1 Introduction2 The demographic transition3 Two con�icting views on population and development4 From stagnation to growth


Introduction

The world population has been growing very slowly for millennia, atyearly growth rates lower than .1 percent until ... 1700.

Then population growth started to rise in Western Europe and itso¤shoots in the 18th and 19th centuries, peaking around 1850 at 1percent and then decreased to 0.5 percent nowadays. In thedeveloping world population growth remained low throughout the19th century, rose sharply after 1950 to peak at 2 percent in 1970and has since gradually decreased to about 1 percent today.

The �rst billion was reached in 1804, the second in 1927 (123 yearslater), the third in 1960 (33 years), the fourth in 1974 (14 years), the�fth in 1987 (13 years) and the sixth in 1999 (12 years). Note that theseventh billion has not been reached yet (while 12 years have passed).Realistic scenarios predict a stabilization by 2050 at 10 billion.


Introduction

In this chapter we want to go beyond the description of thedemographics and analyze the relationship between population growthand economic development: what causes what?

To answer this question we will �rst present basic demographicconcepts and historical evidence on the demographic transition.

We will then present two broad views on the links between populationgrowth and economic development �a pessimistic or fatalistic viewinspired by Thomas Malthus and its modern disciples (such as PaulEhrlich), and an optimistic view advocated by economists anddemographers such as Julian Simon, Simon Kuznets and EstherBoserup �, and discuss the empirical evidence.


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Basic demographic concepts

Population dynamics:

Pt+1 = Pt + Bt �Dt +Mt

withPt = population at time tBt = number of births, hence the birth rate: bt = Bt/PtDt = number of deaths, hence the mortality rate: dt = Dt/PtMt = net migrations, hence the migration rate: mt = Mt/Pt

Growth rate of the population:

Pt+1/Pt = 1+ nt

where nt = bt � dt +mt


The three phases of the demographic transition

First phase: for millennia, birth and deaths rates have been very highand of similar magnitudes, yielding extremely low population growth.

Second phase: death rates started declining thanks to better healthpractices and increases in agricultural and industrial productivity; with�rst steady birth rates and then demographic inertia due to the agestructure, this caused population to explode in Europe in the 19thcentury and in the developing world in the mid-20th century.

Third phase: with declining birth rates and an aging population,birth and death rates again converge to a low-level equilibrium alreadyreached by developed countries while developing countries are eitherin the second or at the beginning of the third phase.


Examples of demographic transitions

The English demographic transition

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CBRCDR


Examples of demographic transitions

The Japanese demographic transition

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CBRCDR


The changing geographic distribution of the worldpopulation

As a result of di¤erences in the timing of the demographic transition,the geographic distribution of the world population has changed overtime.

1650 1800 1933 1995 2010World Population 545 906 2057 5716 6909

Europe 18.3 20.7 25.2 12.7 10.6

North America 0.2 0.7 6.7 5.1 5.1

Oceania 0.4 0.2 0.5 0.5 0.5

Latin America 2.2 2.1 6.1 8.4 8.5

Africa 18.3 9.9 7.0 12.8 15.0

Asia 60.6 66.4 54.4 60.5 60.3


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The Malthusian view

Thomas Robert Malthus (1766-1934) - Cambridge UK"An Essay on the Principle of Population as it A¤ects the Future Improvement of

Society" (1798)


The "old" Malthusian view

Main idea: demographic growth exceeds the capacity of agriculture tosustain a growing population (geometric v. arithmetic growth); thisleads to demo-economic cycles with adjustments through famine,epidemies, wars

Any increase in income (real wages) is absorbed through higherpopulation growth, leading to constant wages at survival levels in thelong-run (Ricardo-Malthus�s "iron law of wages")

Salvation comes from abstinence: the poor should refrain from givingbirth to too many children.


The Malthusian view: illustration

England: 12001850

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1215 1305 1395 1485 1575 1665 1755 18400

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PopulationFarm real wage


A Natural Experiment Con�rming the Malthusian View:the Black Death

1347: originating from Asia, the Black Death enters through the portof Marseilles and spreads throughout Europe in two years, killing onethird of the population (from 80 to 56 million); the plague comesback in other forms episodicaly in the 2nd half on the 14th century.

Due to the fall in population, the ratio of land per worker rises; realwages started to rise tremendously all over Europe, doubling withinone century; at the turn of the 16th century however, populationstarted to grow again and real wage decreased; by 1650 they wereback to their 1350 levels


The "new" Malthusian view

Paul Ehrlich, "The population bomb", 1968: predicts that within adecade, overpopulation will cause repeated famines and resurgence ofdiseases, eventually killing one �fth of the world�s population.

This did not happen but the emphasis is now on sustainabledevelopment; examples:

Lester Brown, World Watch Institute, "Beyond Malthus" (1999):overpopulation will constrain and even reverse economic progress

Population Action International: �the capacity of farmers to feed theworld�s future population is in jeopardy�

Population Institute: �The Four Horsemen of the 21st centuryapocalypse: overpopulation, deforestation, water scarcity, famine�

Many examples of historical collapses of societies (Easter Island,Mayas, Anasazi settlements) and modern con�icts (Rwanda, Haiti)triggered by population pressure on fragile environments (see JaredDiamond�s "Collapse", 2004)


The Kuznets-Simon-Boserup view

Economists have long been skeptical about the alarmist view. Why?Theoretical arguments:

The view that people have zero productivity is incompatible with theprinciple that people respond to incentives (pro�t opportunity foremployers, motives to increase one�s income for the individual).People are not just "labor", they are also creators and innovators. Inother words, technical progress is endogenous to population size.

On the supply side, the "genius principle": the higher the population,the more likely it is another Mozart or Einstein will come, raising thestock of ideas; and since ideas can be shared at zero cost, new ideasare used more e¤ectively in large than in small populations. Thisprinciple was initially put forward by Julian Simon (1977) and SimonKuznets (1960).



On the demand side, the "population pressure" principle: populationgrowth spurs technological innovation precisely because it putspressure on scarce ressources (necessity is the mother of invention).This was initially put forward by the Danish, UN-based economistEsther Boserup.

If this is true, this should apply �rst and foremost to agriculture, thesector which has the task to feed a growing population

Boserup (1981) classi�ed countries into �ve groups of increasingpopulation density, and showed that high-density countries have moreirrigation, use chemical fertilizers, practice multiple cropping, etc. Inshort, high population densities go hand in hand with technologicallymore intensive farming. Correlation and causation.



Esther Boserup (1910-1999) - DanishUN-based development and agricultural economist



Simon Kuznets (1901-1985) - American (Russian-born)Economic historian, Winner of the Nobel Prize in Economics in 1971


Empirical evidence: observations

First, the doomsday scenario did not happen. For example, while theworld population doubled between 1960 and 1998, food productiontripled (including in developing countries). Still, it may be the casethat such growth is not sustainable, is discounting the future (eatingthe capital of "Mother Earth")

Second, in the long-run, population growth and economic growthhave been closely associated: low for millennia, accelerating at thesame time and then both slowing down in the last period (forindustrialized nations).

Third, there are also examples of societies that grew largedemographically while at the same time preserving their environmentthanks to bottom-up (New Guinea) or top-down (Japan)management ((see Jared Diamond�s "Collapse", 2004)


Empirical evidence: cross-sectional results

A cross-sectional analysis gives no clear indications: today populationgrowth and economic growth seem randomly associated;

in addition, variations in population growth (ranging from 1 to 4percent over the period 1960-92) are small relative to variations ineconomic growth (from -2 to 10 percent). Assuming populationgrowth decreases economic growth one for one (ie, additional peoplehave zero productivity), this could at best explain one fourth of thevariation in per capita growth


Empirical evidence: long-run results

Michael Kremer: "Population Growth since 1 Million BC", QJE1993

Testable implication: the Kuznets-Simon-Boserup hypothesis impliesa positive relationship between initial population and populationgrowth (in a Malthusian world), the Malthus-Ehrlich-Brownhypothesis implying a negative relationship.

In the very long-run, population growth has been accelerating, notdecelerating; the positive relationship is compatible with the KSBview and incompatible with the MEB view.

In the last period population growth has been decelerating;howeverthis is due to falling birth rates, not to to increasing death rates, asthe Malthusian theory would predict.


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From stagnation to growth

As we have seen in the previous chapter, for millennia populationgrowth remained low (accelerating very slowly) and income levelsremained at survival levels: this is called a "Malthusian regime".

Any increase in income (due, e.g., to technological progress or toexogenous shocks such as wars or epidemies) was matched after sometime by increases in population, keeping average income more or lessconstant.

It is estimated that real incomes were about 20% higher in 1800compared to the year 0; Europe�s peasants had about the same realincome as Egyptians peasants in pharaonic times



Then, around 1700 (for Western Europe), the demographic transitionstarted. At about the same time, an agricultural revolution hadstarted, followed by the industrial revolution.

For the �rst time in history, real output increased steadily, withpopulation �rst also growing steadily (during the transition phase),leading to moderate gains in per capita income: this is called aregime of "extensive (or post-malthusian) growth". Extensive growthhas now reached every region of the world.

Eventually population growth slowed down while output kept growing,leading to sharp increases in living standards: this is called an"intensive (or modern) growth" regime, now well established in theWestern hemisphere and in East Asia.

In other words, the demographic transition has also been an economictransition from Malthusian to modern growth.



The long-term evolution of income per capita

Average world GDP per capita (USD per year)

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DeLongNordhaus



Another measure of real incomes

Source: Gregory Clark: "The long march of history: Farm wages, population, andeconomic growth, England 1209�1869", Economic History Review, February 2007.



From Malthusian to post-malthusian growth

England: 12001850

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Population

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From extensive to intensive growth

Output growth in Western Europe

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At this point, we can ask: what caused what? Given that the timingsare so intricated, the answer is complex.

There are theories explaining the long stagnation that characterisesthe Malthusian epoch, and theories explaining the demographic andeconomic take-o¤, and others explaining the transition to moderngrowth.

In general these theories emphasize a number of (proximate?) causes,such as the rise of property rights (Douglas North) in the cities ofmedieval Europe, the sanitation and hygiene revolution, or the adventof general purpose technologies (Schumpeter) and can explain one orat best two of the three phases



For example, Nobel Prize Winner (in 1995) Robert Lucas, in "TheMechanics of Economic Development" (JPE1988), explains thattechnological progress is "skill-biased", i.e. gradually increases thereturn to skills:

- at some point, this rate of return became higher than the rate at whichwe discount the future (which, in equilibrium, is the rate of return tocapital), prompting people to start investing in human capital andproducing more output per capita- this also implies that altruistic parents will invest more in the education(human capital) of their children, gradually trading o¤ quantity for quality(Becker, 1981), prompting population growth to decrease � see nextchapter on fertility.

Are there ultimate causes, that can account for the three phases in auni�ed theoretical framework? This is the ambition of the "uni�edgrowth theory" proposed by Oded Galor (Handbook of EconomicGrowth, Chapter 4, 2005).


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