Lecture 3 - Population and Economic Growth

8/11/2019 Lecture 3 - Population and Economic Growth

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LECTURE 3:POPULATION AND ECONOMIC GROWTH

HE4005 Growth Theory and Empirics 1 | P a g e

A.SOME FACTSABOUT POPULATION

B.POPULATION ANDOUTPUT OVER THE

LONG RUNC.BREAKDOWN OF THEMALTHUSIAN MODEL

D.POPULATIONGROWTH IN THE SOLOWMODEL

E.AQUANTITATIVEANALYSIS

F.EXPLAININGPOPULATION GROWTH

G.RELATEDLITERATURE

A.SOME FACTS ABOUT POPULATION

The Most Populated Countries of the World (2012)

Source:http://www.nationsonline.org/
http://www.nationsonline.org/http://www.nationsonline.org/http://www.nationsonline.org/http://www.nationsonline.org/


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G.RELATEDLITERATURE

The Most Densely Populated Nations of the World (2012)

Source:http://www.nationsonline.org/
http://www.nationsonline.org/http://www.nationsonline.org/http://www.nationsonline.org/http://www.nationsonline.org/


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G.RELATEDLITERATURE

World Population Density Map (people/km2)

Source:www.worldometers.info

More data athttp://www.worldometers.info/world-population/
http://www.worldometers.info/http://www.worldometers.info/http://www.worldometers.info/http://www.worldometers.info/world-population/http://www.worldometers.info/world-population/http://www.worldometers.info/world-population/http://www.worldometers.info/world-population/http://www.worldometers.info/


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A.SOME FACTS

ABOUT POPULATION

B.POPULATION ANDOUTPUT OVER THELONG RUN

C.BREAKDOWN OF THEMALTHUSIAN MODEL




G.RELATEDLITERATURE

The United Nations World Population Estimates


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G.RELATEDLITERATURE


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G.RELATEDLITERATURE

Relationship between Income per Capita and Population

Growth

Strong negativecorrelation

It is not easy to fully comprehend this underlying relationship

(difficult to disentangle causality)


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A.SOME FACTS ABOUTPOPULATION

B.POPULATION AND

OUTPUT OVER THELONG RUN





G.RELATEDLITERATURE

B.POPULATION AND OUTPUT OVER THE LONG RUN

World Population: 10,000BC to 2010AD

Period Average growth10,000BC-1AD 0.04%

1-1800AD 0.09%1801-1900AD 0.6%1901-1950AD 0.9%1951-2000AD 1.8%


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B.POPULATION AND





F.EXPLAINING

POPULATION GROWTHG.RELATEDLITERATURE

Can the populations grow persistently?

The Malthusian Model

Developed by Thomas Malthus (1798)

Key arguments:

Human can breed at a rapid rate, but scare resourcessuch as land limitpopulation growth

Population tends to grow in affluent societies. As population grows, the

availability of land per capita falls, and people become poorer. Hence,people are better off with lower population density

Poverty will limit population growth, and the society will reach a level ofincome commensurate with constant population

(1776-1834)


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LONG RUN





G.RELATEDLITERATURE

2 mechanisms that restrict population to expand:

(1) Positive Check: limited resources reduce population(2)

Preventive Check: reduction of fertility to prevent poverty

Positive Check raises the death rate through famine, disease and war(which could afflict volatile economic cycles) -Malthusian catastrophe

Preventive Checklowers the birth rate through abortion, birth control,postponement of marriage (which ensures a higher standard of living forall and lead to economic stability) -Moral restraint


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B.POPULATION AND

OUTPUT OVER THE

LONG RUN





G.RELATEDLITERATURE

Graphical Representation of the Model

Point AHigh yLgrows (n>0)

(

)

()Point BLow yLshrinks (n


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B.POPULATION AND





F.EXPLAINING

POPULATION GROWTHG.RELATEDLITERATURE

Effect of Productivity Improvement

Consider thenew arrival of a

new crop

The income-population lineshifts right

At eachpopulation level,y is now higher

At point B, ( > 0) > 0 At the newsteady state(point C),Lhas

increased whileyremainsunchanged


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Exer c i se

According to the Malthusian Model, if the size of the population is

below its steady-state level, and a disease strikes which furtherreduces the size of the population, what would be the effect on thegrowth rate of population? Show the effect on a diagram.







G.RELATEDLITERATURE


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LONG RUN





G.RELATEDLITERATURE

Malthus ruled out other solutions, such as the notion that agriculturalimprovements could expand without limit.

If improvements in productivity will notmake people better off, thenwhat will?

Preventive Check(Moral Restraint) by restricting births is the only

way in which a society can raise its standard of living


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LONG RUN





G.RELATEDLITERATURE

Effect of Moral Restraint in the Malthusian Model

By implementingmoral restraint,the income-population growthline shifts right

nis now lower at

each income level(y)

At the new steadystate (point C),there is apermanentreduction inLbutan increase in y


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Exer c i se

Consider a Malthusian model in which the equation that relates the

population growth rate () to income per capita () is:

Letbe the total quantity of land in the economy, which is fixed. Let bethe quantity of land per capita (so that =/). The function that relatesland per capita and income per capita is:

whereis a measure of productivity.(a) Suppose thatis constant. What will the steady-state level of income percapita be?

(b) Now suppose that grows at the rate of 10% per year (i.e., = 0.1).What will be the steady-state level of income per capita?

= 100100

=







G.RELATEDLITERATURE


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C.BREAKDOWN OFTHE MALTHUSIANMODEL




G.RELATEDLITERATURE

C.BREAKDOWN OF THE MALTHUSIAN MODEL

Income growth and population growth in in Western Europe

The Malthusian model predicts that standards of living will remain

constant over time, even in the face of technological progress.It also assumes that higher income raises the growth rate of population(positive correlation)

Evidence presented above contradicts this thesis. Clearly, the richestcountries in the world have the lowest rates of population growth.

Negative

correlation

since 1820!


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D.POPULATIONGROWTH IN THESOLOW MODEL



G.RELATEDLITERATURE

D.POPULATION GROWTH IN THE SOLOW MODEL

Does the fact that the Malthusian model no longer works mean thatpopulation would have no effect on income per capita?

NO. (1) Population is still an important (though not dominant) factor forunderstanding income differences

(2) The effect of population on income can work through a differentchannel capitalin the Solow Model

Malthusian model focuses on the levels of the population

Solow model focuses on the growth rate of the population

Capital dilutionoccurs when population growth results in less capitalavailable for each worker

This would lead to a decline in output per capita (as we have seen in theprevious lecture)

We can use the Solow model to examine the effect of capital dilution onoutput


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Exer c i se

An increase in population growth would affect the dynamics of the Solowmodel in the same way as an increase in: the level of technology / the rateof depreciation / efficiency / the rate of investment







G.RELATEDLITERATURE

Reproducing the steady-state relation (or the change in capital function)

=() where is the change in the level of capital per worker, is thefraction of output invested, is the depreciation rate, and()is theproduction function.

Defining nas the growth rate of the labor force, incorporating the effect of

capital dilution () gives:

=()

=() (+ )


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G.RELATEDLITERATURE

The Solow Model Incorporating Population Growth


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G.RELATEDLITERATURE


Consider a Cobb-Douglas production function:

() =

Using the steady-state relation derived earlier:

=

(

)

(

+

)

The condition for the steady state is therefore:

= ( + )


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B.POPULATION AND





F.EXPLAINING

POPULATION GROWTH

G.RELATEDLITERATURE

Solving this equation to give the stead-state level of capital per worker:

= + 11

And the stead-state level of output per worker can be given as:

=() =1/(1) +


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B.POPULATION AND

OUTPUT OVER THE

LONG RUN





G.RELATEDLITERATURE

To calculate the effect of population growth, consider 2 countries with thesame level of productivity (A), depreciation rate () and investment rate(), but different population growth rate (n).

Their steady-state output is given as:

Country i: =1/(

1)

+

Countryj: =1/(1) +


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B.POPULATION AND

OUTPUT OVER THE

LONG RUN





G.RELATEDLITERATURE

Income per worker in country irelative to that of countryjis:

=++

Suppose = 1/3, country ihas a population growth rate of 0% whereascountry j has a population growth rate of 4%, both countries have thesame depreciation rate of 5%, their income ratio would be:

=0.04+0.050.05 1/2

= 1.34


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B.POPULATION AND

OUTPUT OVER THE

LONG RUN




F.EXPLAININGPOPULATIONGROWTH

G.RELATEDLITERATURE

F.EXPLAINING POPULATION GROWTH

Changes in the growth rates of population can be explained bydemographic transition

This process is largely complete in the richest countries in the world but isstill ongoing in much of the developing world

Demographic Transition: the process by which a countrysdemographic (population) characteristics are transformed as itdevelops


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Qu i z

Suppose in Country A, 1/3 of the people die at birth and 2/3 of thepeople die at age 60. What is the life expectancy in Country A?






F.EXPLAININGPOPULATION

GROWTH

G.RELATEDLITERATURE

Mortality transition

Refers to the declinein the prevalence of death (often measured bylife expectancy at birth)

Its reduction is due to:(1) better standard of living;(2) improvements in public health measures; and(3) advancement in medical treatments in curing diseases

Fertility transition

Refers to the decreasingfertility rates

Fertility rate is the number of children that a woman would have ifshe lived through all of her childbearing years


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Exer c i se

Using data in EG.dta, analyze the relationship between initial life

expectancy (lifeex75) and the subsequent average population growthrate (gpop).

Exer c i se

Using data in EG.dta, analyze the relationship between initial fertilityrate (tfr75) and the subsequent average population growth rate(gpop).



LONG RUN





GROWTHG.RELATEDLITERATURE


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Exer c i se

Suppose in Country X, 1/3 of the people die at birth and 2/3 of thepeople die at age 60. What is the life expectancy in Country X?



LONG RUN





GROWTHG.RELATEDLITERATURE

Life Expectancy in Developed Countries


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LONG RUN





GROWTH

G.RELATEDLITERATURE

Total Fertility Rate in the United States, 18602008

High population growth rate in the developing world is due to the fact thatmortality rates have fallen faster than fertility rates


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B.POPULATION AND






G.RELATEDLITERATURE

G.RELATED LITERATURE

Madsen, Ang & Banerjee (2010)

Four Centuries of British Economic Growth: The Roles of Technologyand Population, Journal of Economic Growth [LINK]

Using long historical data for Britain over the period 1620-2006, this paper seeksto explain the importance of innovative activity, population growth and otherfactors in inducing the transition from the Malthusian trap to the post-Malthusiangrowth regime.

Ashraf and Galor (2011)

Dynamics and Stagnation in the Malthusian Epoch, AmericanEconomic Review [LINK]

This paper examines the central hypothesis of the influential Malthusian theory,according to which improvements in the technological environment during the

pre-industrial era had generated only temporary gains in income per capita,eventually leading to a larger, but not significantly richer, population.
http://eds.b.ebscohost.com/eds/results?sid=9a8f97aa-8ba3-4be1-962e-41f08778b874%40sessionmgr110&vid=4&hid=102&bquery=(Four+AND+Centuries)+AND+%22of%22+AND+(British+AND+Economic+AND+Growth%3a+AND+The+AND+Roles)+AND+%22of%22+AND+Technology+AND+Population&bdata=JmRiPWJ1aCZ0eXBlPTAmc2l0ZT1lZHMtbGl2ZSZzY29wZT1zaXRlhttp://eds.b.ebscohost.com/eds/results?sid=9a8f97aa-8ba3-4be1-962e-41f08778b874%40sessionmgr110&vid=5&hid=102&bquery=Dynamics+AND+Stagnation+AND+%22in%22+AND+(the+AND+Malthusian+AND+Epoch)&bdata=JmRiPWJ1aCZ0eXBlPTAmc2l0ZT1lZHMtbGl2ZSZzY29wZT1zaXRlhttp://eds.b.ebscohost.com/eds/results?sid=9a8f97aa-8ba3-4be1-962e-41f08778b874%40sessionmgr110&vid=5&hid=102&bquery=Dynamics+AND+Stagnation+AND+%22in%22+AND+(the+AND+Malthusian+AND+Epoch)&bdata=JmRiPWJ1aCZ0eXBlPTAmc2l0ZT1lZHMtbGl2ZSZzY29wZT1zaXRlhttp://eds.b.ebscohost.com/eds/results?sid=9a8f97aa-8ba3-4be1-962e-41f08778b874%40sessionmgr110&vid=5&hid=102&bquery=Dynamics+AND+Stagnation+AND+%22in%22+AND+(the+AND+Malthusian+AND+Epoch)&bdata=JmRiPWJ1aCZ0eXBlPTAmc2l0ZT1lZHMtbGl2ZSZzY29wZT1zaXRlhttp://eds.b.ebscohost.com/eds/results?sid=9a8f97aa-8ba3-4be1-962e-41f08778b874%40sessionmgr110&vid=4&hid=102&bquery=(Four+AND+Centuries)+AND+%22of%22+AND+(British+AND+Economic+AND+Growth%3a+AND+The+AND+Roles)+AND+%22of%22+AND+Technology+AND+Population&bdata=JmRiPWJ1aCZ0eXBlPTAmc2l0ZT1lZHMtbGl2ZSZzY29wZT1zaXRl


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B.POPULATION AND






G.RELATEDLITERATURE

Chen and Kung (2013)

Of Maize and Men: The Effect of a New World Crop on Population and

Economic Growth in China [LINK]

This paper finds that the adoption of maize accounted for 18% of the populationincrease in China during 1776-1910, but had no significant effect on economicgrowth. These findings lend empirical support to the theoretical claim that underthe Malthusian regime a new technology could only bring about population butnot economic growth.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2102295http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2102295http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2102295

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Lecture 3 - Population and Economic Growth

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