POPULATION AND ECONOMIC GROWTH

POPULATION AND ECONOMIC GROWTH

BY: EDE KENECHUKWU KENNETH edekenechukwuk@gmail.com

The rate of economic growth depends on several factors, but its relationship with the growth of population has been a central issue of discussion for many years dating back to ‘Thomas Malthus’ book “An Essay on the Principle of Population” Published in 1798. In summary, from his argument was that if population grew at a faster rate than output, then eventually the excess supply of labour would drive wages down to the subsistence level, or beyond. This would arise through the operation of the law of diminishing returns, as more and more labour is employed with fewer other factors of production.

Similar prophecies of economic catastrophy have been made almost continuously since the time of Malthus, but the doomsday has not yet arrived, mainly because of the tremendous stride taken by technical progress. Improvements in the quality of labour force, or capital equipment, or in the method of production, may all lead to increased production from a given stock of resource. The quality of human capital depends upon both physical and educational conditions. Improvements in health lead to increased productivity via reductions in sickness but an increased life-span means that more retired workers must be supported by the working population.

A higher level of education and training facilitates the adoption of more complex techniques and machines and so also increases productivity. These additions in labour productivity due to an improved quality of the labour force may offset the effects of diminishing returns due to the increased quality of labour.

As the process of economic growth and development proceeds, there is likely to be an effect on population growth. In a less developed country, birth rates and death rates are high, and productivity is low. The first demographic change introduced by an increase in the standard of living is a reduction in the death rate. Increased medical facilities also reduce infant mortality, and so the rate of population growth accelerates. As long as this is accompanied by a rapid growth in demand, and also given investment is sufficient to increase labour productivity, per capita income raises. After a period, the increased standard of living causes a fall in the birth rate. The final position of stability then, is associated with low birth-and-death-rates and high productivity. The complete process has occurred in all developed economies so far.

The most difficult phase of this demographic transition from a less developed to a developed economy occurs when the rate of population increase is at maximum. Then there is a chance that the rate of balanced growth may become less than this natural rate of increase of the population. That is investment is growing at a slow rate and so both aggregate demand and supply cannot keep pace with population increases, thus per capita incomes will fall.

As shown graphically in the fig.1 above, that denotes an economically optimal population of N₀ at time T₀. The per capita level of level of income Y₀ represents the maximum that can be produced with existing resources and techniques i.e. the maximum of the per capita short-run production function Y(T₀). At a population below N₀, the existing stock of other resources has too little labour to be combined with efficiency. If the population were greater than N₀, diminishing returns would ensure a lower per capita income.

As technical progress and investment occur, the optimal population increases so that at time T₁, it has risen to N₁, where the maximum of the new per capita production function is Y1. If during this period the actual population rises from N0 to N2, then per capita income will fall to Y2. In this situation the only way to achieve a higher standard of living is to pursue policies designed to reduce the rate of population growth.