Economic and Population Growth: What’s the Connection? Higher population growth rates would definitely lead to higher economic growth rates if population growth and per capita GDP growth are fully independent.
What effect does population growth have on GDP?
2. Demographic Trends and Economic Growth Implications
In discussions on the drivers of economic growth, demographic factors have occasionally taken center stage. Thomas Malthus predicted in the 18th century that due to the continuous rapid growth of the world population, GDP growth per capita will decline. Fertility rates, on the other hand, began to decline in the 1960s. The worldwide fertility rate (measured as births per woman) fell below 3 in 2000 and is expected to be below 2 by 2050, down from 5 to 6 before 1950. As a result, the global population growth rate, which was around 1-3/4 percent in 1950, fell to around 1-1/4 percent in 2000 and is expected to be marginally positive by 2050 due to increasing life expectancy. 3 Slowing population growth has been accompanied by a considerable and continued increase in the number of people aged 65 and up, a demographic transition with significant consequences for economic growth and fiscal sustainability. The proportion of the global population aged 65 and more increased from 5% in 1950 to over 8% in 2000, and is anticipated to nearly double to around 15% by 2050.
Demographic shifts can have a variety of effects on GDP growth. For starters, slower population increase means less labor input. Second, decreased population growth has an indirect, potentially negative impact on individual labor supply, as higher tax rates limit the motivation to work. Third, according to the life-cycle hypothesis, people transition from being net borrowers in their youth to net savers in their working years, and lastly to dis-savers in their retirement years. As a result, as the population ages, aggregate savings decline, resulting in lower investment growth and, as a result, poorer GDP growth.
In the September 2004 issue of the World Economic Outlook, the International Monetary Fund, IMF, published a research that looked at the impact of demographic shift on global economic growth (2004).
4 This study indicated that a 1 basis-point increase in the share of working-age (15 to 64) population will enhance per capita real GDP growth (in PPP terms) by as much as 8 basis points using a large multi-country panel regression framework connecting economic growth to population age structure. 5 On the other hand, a one-basis-point rise in the proportion of the population aged 65 and up would reduce economic growth by around four basis points. 6 Unlike the IMF research and others, this note has a smaller geographical scope, focusing solely on advanced OECD economies, but it is more up-to-date, having data up to 2010. 7
3. Demographic Factors and Growth in OECD Countries: Empirical Evidence
In this note, we assume that the level of real per-capita GDP is influenced by demographic and other variables in the following way:
where $$y $$ is the GDP level of country I at time t, and $$X $$ is a collection of relevant variables other than demographics. $$Sigma p = 1$$ reflects the influence of the j-th demographic group on the level of GDP, and $$alpha $$ represents the influence of the j-th demographic group on the level of GDP. (Note that the following equation assumes that changes in population composition have the same effect across all OECD economies.)
The upper panels of Figure 2 show how the age structure of the population has evolved in the United States between 1950 and 2010, to highlight demographic evolution in the postwar period. In 1950, the shares of the U.S. population in the age ranges 0-14, 15-39, 40-64, and 65+ were around 25%, 40%, 25%, and 10%, respectively, as shown in the upper left panel. The upper right panel depicts the considerable population ageing in the United States during the previous sixty years. By 2010, the population share of youth (0-14) and young adults (15-39) had declined by more than ten percentage points, while the senior population share had risen by about five percentage points.
Japan, as is well known, has seen a considerably more rapid aging process. Japan was a fairly “young” country at the end of WWII, with a far younger population composition than the United States. In 1950, the 0-14 and 15-39 age categories each accounted for more than 35 percent of the total population, while only one in every four persons was above the age of 40, as indicated in the lower left panel of Figure 1. Sixty years later, fewer than half of the population was under the age of 40; almost one-third of the population was between the ages of 40 and 64, and nearly one-fourth was above the age of 65. Many studies have shown that Japan’s rapid aging is a major factor in the country’s declining GDP growth.
In the long run, how does population growth effect GDP per capita?
Long-run growth is described as an economy’s ability to create more products and services over time. In addition to pricing and supply and demand, a country’s GDP is intimately linked to population growth.
Determinants of Long-Run Growth
- Productivity growth is defined as the ratio of economic outputs to inputs ( capital, labor, energy, materials, and services). When productivity rises, the cost of commodities decreases. Lowering the price of a product or service increases demand for it. Increased demand might result in increased revenue.
- Changes in demographics have an impact on economic growth through altering the employment-to-population ratio. The number and quality of available natural resources are among the factors. The population’s age structure has an impact on employment and long-term growth.
- Labor force participation: the size of economic sectors and the degree of labor force participation influence economic growth. The labor force participation rate is the percentage of workers who are willing to work. Because of low birth and mortality rates, labor force participation is high in nations with significant growth and industrialization.
Inflation and Excessive Growth
An economy will continue to expand and prosper when economic growth meets the growth of the money supply. In this instance, population growth would increase, but so would the demand for products and services. As a result, there would be more job openings and the employment rate would rise.
When economic growth is unbalanced, however, inflation and excessive growth can occur. Inflation happens when the cost of goods and services rises faster than salaries, resulting in a loss of purchasing power. A drop in demand for goods and services will result in lower revenue and jobs. Population expansion at a high rate results in lower capital per worker, poorer productivity, and reduced GDP growth.
What is the link between population and GDP per capita?
According to the findings, per capita GDP has a negative impact on population growth, implying that an increase in per capita GDP reduces a country’s population growth.
How does a country’s population effect its per capita GDP?
GDP per capita is a measure of a country’s economic output divided by the number of people living there. Rich countries with low populations often have higher GDP per capita. When you do the arithmetic, you’ll see that wealth is distributed more evenly among fewer people, which raises a country’s GDP.
Is GDP affected by population size?
To be sure, a higher population nearly always means a larger economy overall. A greater GDP will result from more labor, customers, and government spending. However, per capita (i.e., per person) GDP, not the overall size of the economy, determines a country’s level of living.
What factors influence GDP?
Defined Gross Domestic Product (GDP) Personal consumption, private investment, government spending, and exports are all factors that go into calculating a country’s GDP (minus imports).
What effect does population growth have?
Human population growth has a variety of effects on the Earth system, including:
- Increasing the amount of natural resources extracted from the environment. Fossil fuels (oil, gas, and coal), minerals, plants, water, and wildlife, particularly in the oceans, are among these resources. The removal of resources, in turn, frequently releases pollutants and waste, lowering air and water quality and endangering human and other species’ health.
- Increasing the amount of fossil fuels burned for energy generation, transportation (for example, vehicles and planes), and industrial activities.
- Drinking, agriculture, recreation, and industrial operations all demand more freshwater. Lakes, rivers, the earth, and man-made reservoirs are all sources of freshwater.
- Environmental consequences are becoming more severe. To accommodate rising people, forests and other habitats are disrupted or destroyed in order to build urban areas, including residences, businesses, and highways. Furthermore, as the population grows, more land is used for agricultural purposes, such as growing crops and supporting livestock. This, in turn, has the potential to reduce species numbers, geographic ranges, biodiversity, and modify organism interactions.
- Increased fishing and hunting, resulting in dwindling numbers of exploited species. If additional resources become accessible for the species that remain in the environment, fishing and hunting can indirectly increase the number of species that are not fished or hunted.
- Invasive species are being transported more frequently, either intentionally or accidentally, as people travel and import and export goods. Invasive species thrive and outcompete native species in disturbed ecosystems created by urbanization. Many invasive plant species, for example, thrive in strips of land adjacent to roadways and highways.
- Infectious disease transmission Diseases can spread quickly within and among communities when people live in heavily populated places. Furthermore, because transportation has become faster and more common, diseases can easily spread to other areas.
Are there any other cause-and-effect links between human population expansion and other aspects of the Earth system that you can think of?
Learn more about how processes and phenomena associated to the number and dispersion of human populations affect global climate and ecosystems by visiting the pages on fossil fuel burning, agricultural activities, and urbanization.
What impact does population expansion have on a country’s development?
Overpopulation has several advantages: more people equals greater work force, which can produce more goods, and more people will consume those goods. Overpopulation will result in a lack of food, and as the pace of population increase exceeds the rate of food supply, overpopulation will result in a lack of food.
What are the four variables that influence GDP?
Personal consumption, business investment, government spending, and net exports are the four components of GDP domestic product. 1 This reveals what a country excels at producing. The gross domestic product (GDP) is the overall economic output of a country for a given year. It’s the same as how much money is spent in that economy.