Economic Growth and World Trade

How exactly does population growth matter to developing economies? Or, as an economist would pose the question, how does each aspect of population growth, fertility and family size, the proportion of children relative to working-age adults (expressed as the youth dependency ratio), human density and changes in aggregate economic demand affect the way societies manage productive assets and allocate the goods and services derived from them?

Clearly, no single answer will do. At one time or another, economists have suspected that population dynamics influence economic growth, employment and poverty, and the management of assets. The three principal categories of assets are physical (human-built infrastructure related to economic activity), natural (natural resources and the services they provide, including waste material and energy cycling), and human (health and educational status of citizens). In this section, we briefly summarize conclusions drawn from recent research related to each category of asset. Obviously, there is variation among countries, variation in the nature and quality of studies from which conclusions are drawn, and some uncertainty associated with each conclusion.

Unlike laboratory scientists, economists cannot conduct controlled experiments. Their work relies on surveys involving standard economic statistics and on expectations from the theories of their discipline. Using these, economists try to identify patterns over time and through comparisons that shape their conclusions. Studies of a single country often produce valuable insights, but it can be hazardous to generalize by applying the lessons learned to other countries. The problem of generalization is solved where strong patterns of population-related impact emerge from multi-country comparisons. However, such patterns are hard to discern among variations in data quality, history, culture, geography and shocks related to political events or natural disasters. Where information is scarce or hard to measure, economists lean heavily on theory to guide them. The following statements briefly outline what most economists researching demographic change presently accept to be relationships through which high fertility, population growth and increased human density relate to economic well-being in the developing world. In each case, we will try to provide some indication of the degree of certainty and the limits to which these ideas can be applied.

On Economic Growth

Recent research by economists Allen Kelley and Robert Schmidt indicates that during the 1980s population growth, on average, acted as a brake on economic growth as measured by the growth rate of per capita gross domestic product, or GDP.⁴ (This is a standard measure of a nation's total output of goods and services by residents and domestic business, excluding net income from foreign assets and that paid to foreign creditors. Gross national product, or GNP, includes both these figures, which in many economies come close to canceling each other out. This is why GDP and GNP are often roughly equal.)⁴ Results of this extensive analysis suggest that the relationship between population growth and depressed economic performance is strongest among the poorest nations of the developing world, and that the effect on this group extends back through the 1960s and 1970s. The growth of gross domestic product can be constrained by high dependency ratios, which result when rapid population growth produces large proportions of children and youth relative to the labor force. Because governments and families spend far more on children than the children can quickly repay in economic production, especially as modern schooling and health care replaces child labor, economists expect consumption related to children to retard household savings, increase government expenditure and ultimately cut into the growth of GDP.

In many countries experiencing rapidly growing population, and thus growing dependency ratios, the influx of young people into the job market exceeded the jobs created during the 1980s. According to the UN Development Programme, "in many cases [in the developing world] lots of employment was being created, but not fast enough to match the rapid growth in the labor force."⁶

Despite the logic of this relationship, signs of adverse effects on GDP from population growth did not emerge in multi-country comparisons of population and economic growth during the 1960s or 1970s, except in the poorest of the developing countries. The GDP downturns noted during the 1980s could have been amplified by global debt burden and recession. Or it could represent, at least in part, a delayed effect of the high fertility of these earlier decades.⁷ In fact, economists are unsure if the relationship between population and GDP growth that existed in the 1980s is continuing into the 1990s or will continue into the 21st century.⁸