Chapter 1: Population Growth and Economic Development

Transcription

1 Chapter 1: Population Growth and Economic Development Harvard Kennedy School PED 365, Spring 2011 (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

2 Plan 1 Introduction 2 The demographic transition 3 Two con icting views on population and development 4 From stagnation to growth (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

3 Introduction The world population has been growing very slowly for millennia, at yearly growth rates lower than.1 percent until Then population growth started to rise in Western Europe and its o shoots in the 18th and 19th centuries, peaking around 1850 at 1 percent and then decreased to 0.5 percent nowadays. In the developing world population growth remained low throughout the 19th century, rose sharply after 1950 to peak at 2 percent in 1970 and has since gradually decreased to about 1 percent today. The rst billion was reached in 1804, the second in 1927 (123 years later), 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 the seventh billion has not been reached yet (while 12 years have passed). Realistic scenarios predict a stabilization by 2050 at 10 billion. (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

4 Introduction In this chapter we want to go beyond the description of the demographics and analyze the relationship between population growth and economic development: what causes what? To answer this question we will rst present basic demographic concepts and historical evidence on the demographic transition. We will then present two broad views on the links between population growth and economic development a pessimistic or fatalistic view inspired by Thomas Malthus and its modern disciples (such as Paul Ehrlich), and an optimistic view advocated by economists and demographers such as Julian Simon, Simon Kuznets and Esther Boserup, and discuss the empirical evidence. (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

6 Basic demographic concepts Population dynamics: P t+1 = P t + B t D t + M t with P t = population at time t B t = number of births, hence the birth rate: b t = B t /P t D t = number of deaths, hence the mortality rate: d t = D t /P t M t = net migrations, hence the migration rate: m t = M t /P t Growth rate of the population: P t+1 /P t = 1 + n t where n t = b t d t + m t (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

7 The three phases of the demographic transition First phase: for millennia, birth and deaths rates have been very high and of similar magnitudes, yielding extremely low population growth. Second phase: death rates started declining thanks to better health practices and increases in agricultural and industrial productivity; with rst steady birth rates and then demographic inertia due to the age structure, this caused population to explode in Europe in the 19th century 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 already reached by developed countries while developing countries are either in the second or at the beginning of the third phase. (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

8 Examples of demographic transitions The English demographic transition CBR CDR (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

9 Examples of demographic transitions The Japanese demographic transition CBR CDR (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

10 The changing geographic distribution of the world population As a result of di erences in the timing of the demographic transition, the geographic distribution of the world population has changed over time World Population Europe North America Oceania Latin America Africa Asia (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

12 The Malthusian view Thomas Robert Malthus ( ) - Cambridge UK "An Essay on the Principle of Population as it A ects the Future Improvement of Society" (1798) (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

13 The "old" Malthusian view Main idea: demographic growth exceeds the capacity of agriculture to sustain a growing population (geometric v. arithmetic growth); this leads to demo-economic cycles with adjustments through famine, epidemies, wars Any increase in income (real wages) is absorbed through higher population growth, leading to constant wages at survival levels in the long-run (Ricardo-Malthus s "iron law of wages") Salvation comes from abstinence: the poor should refrain from giving birth to too many children. (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

14 The Malthusian view: illustration England: Population Farm real wage (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

15 A Natural Experiment Con rming the Malthusian View: the Black Death 1347: originating from Asia, the Black Death enters through the port of Marseilles and spreads throughout Europe in two years, killing one third of the population (from 80 to 56 million); the plague comes back 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; real wages started to rise tremendously all over Europe, doubling within one century; at the turn of the 16th century however, population started to grow again and real wage decreased; by 1650 they were back to their 1350 levels (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

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

17 The "new" Malthusian view Paul Ehrlich, "The population bomb", 1968: predicts that within a decade, overpopulation will cause repeated famines and resurgence of diseases, eventually killing one fth of the world s population. This did not happen but the emphasis is now on sustainable development; 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 the world s future population is in jeopardy Population Institute: The Four Horsemen of the 21st century apocalypse: 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 Jared Diamond s "Collapse", 2004) (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

18 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 the principle that people respond to incentives (pro t opportunity for employers, motives to increase one s income for the individual). People are not just "labor", they are also creators and innovators. In other 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 the stock of ideas; and since ideas can be shared at zero cost, new ideas are used more e ectively in large than in small populations. This principle was initially put forward by Julian Simon (1977) and Simon Kuznets (1960). (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

19 The Kuznets-Simon-Boserup view On the demand side, the "population pressure" principle: population growth spurs technological innovation precisely because it puts pressure on scarce ressources (necessity is the mother of invention). This was initially put forward by the Danish, UN-based economist Esther Boserup. If this is true, this should apply rst and foremost to agriculture, the sector which has the task to feed a growing population Boserup (1981) classi ed countries into ve groups of increasing population density, and showed that high-density countries have more irrigation, use chemical fertilizers, practice multiple cropping, etc. In short, high population densities go hand in hand with technologically more intensive farming. Correlation and causation. (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

20 The Kuznets-Simon-Boserup view Esther Boserup ( ) - Danish UN-based development and agricultural economist (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

21 The Kuznets-Simon-Boserup view Simon Kuznets ( ) - American (Russian-born) Economic historian, Winner of the Nobel Prize in Economics in 1971 (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

22 Empirical evidence: observations First, the doomsday scenario did not happen. For example, while the world population doubled between 1960 and 1998, food production tripled (including in developing countries). Still, it may be the case that such growth is not sustainable, is discounting the future (eating the capital of "Mother Earth") Second, in the long-run, population growth and economic growth have been closely associated: low for millennia, accelerating at the same time and then both slowing down in the last period (for industrialized nations). Third, there are also examples of societies that grew large demographically while at the same time preserving their environment thanks to bottom-up (New Guinea) or top-down (Japan) management ((see Jared Diamond s "Collapse", 2004) (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

23 Empirical evidence: cross-sectional results A cross-sectional analysis gives no clear indications: today population growth and economic growth seem randomly associated; in addition, variations in population growth (ranging from 1 to 4 percent over the period ) are small relative to variations in economic growth (from -2 to 10 percent). Assuming population growth decreases economic growth one for one (ie, additional people have zero productivity), this could at best explain one fourth of the variation in per capita growth (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

24 Empirical evidence: long-run results Michael Kremer: "Population Growth since 1 Million BC", QJE1993 Testable implication: the Kuznets-Simon-Boserup hypothesis implies a positive relationship between initial population and population growth (in a Malthusian world), the Malthus-Ehrlich-Brown hypothesis implying a negative relationship. In the very long-run, population growth has been accelerating, not decelerating; the positive relationship is compatible with the KSB view and incompatible with the MEB view. In the last period population growth has been decelerating;however this is due to falling birth rates, not to to increasing death rates, as the Malthusian theory would predict. (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

26 From stagnation to growth As we have seen in the previous chapter, for millennia population growth remained low (accelerating very slowly) and income levels remained at survival levels: this is called a "Malthusian regime". Any increase in income (due, e.g., to technological progress or to exogenous shocks such as wars or epidemies) was matched after some time by increases in population, keeping average income more or less constant. It is estimated that real incomes were about 20% higher in 1800 compared to the year 0; Europe s peasants had about the same real income as Egyptians peasants in pharaonic times (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

27 From stagnation to growth Then, around 1700 (for Western Europe), the demographic transition started. At about the same time, an agricultural revolution had started, followed by the industrial revolution. For the rst time in history, real output increased steadily, with population rst also growing steadily (during the transition phase), leading to moderate gains in per capita income: this is called a regime of "extensive (or post-malthusian) growth". Extensive growth has 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 the Western hemisphere and in East Asia. In other words, the demographic transition has also been an economic transition from Malthusian to modern growth. (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

28 From stagnation to growth The long-term evolution of income per capita Average world GDP per capita (USD per year) DeLong Nordhaus (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

29 From stagnation to growth Another measure of real incomes Source: Gregory Clark: "The long march of history: Farm wages, population, and economic growth, England ", Economic History Review, February (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

30 From stagnation to growth From Malthusian to post-malthusian growth England: Farm real wage Population (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

31 From stagnation to growth From extensive to intensive growth Output growth in Western Europe Population GDP per capita % 0.25% 0.75% 1.25% 1.75% 2.25% 2.75% (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

32 From stagnation to growth At this point, we can ask: what caused what? Given that the timings are so intricated, the answer is complex. There are theories explaining the long stagnation that characterises the Malthusian epoch, and theories explaining the demographic and economic take-o, and others explaining the transition to modern growth. In general these theories emphasize a number of (proximate?) causes, such as the rise of property rights (Douglas North) in the cities of medieval Europe, the sanitation and hygiene revolution, or the advent of general purpose technologies (Schumpeter) and can explain one or at best two of the three phases (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33

33 From stagnation to growth For example, Nobel Prize Winner (in 1995) Robert Lucas, in "The Mechanics of Economic Development" (JPE1988), explains that technological progress is "skill-biased", i.e. gradually increases the return to skills: - at some point, this rate of return became higher than the rate at which we discount the future (which, in equilibrium, is the rate of return to capital), prompting people to start investing in human capital and producing 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 next chapter on fertility. Are there ultimate causes, that can account for the three phases in a uni ed theoretical framework? This is the ambition of the "uni ed growth theory" proposed by Oded Galor (Handbook of Economic Growth, Chapter 4, 2005). (Harvard Kennedy School) Hillel Rapoport PED 365, Spring / 33