research methods in macroecon

8/11/2019 research methods in macroecon

http://slidepdf.com/reader/full/research-methods-in-macroecon 1/33

Copyright © 2013 Pearson Education, Inc. Publishing as Addison-Wesley

POPULATION

AND

ECONOMIC

GROWTH

Chapter 4

Marco Savioli




Population and economic growth

Changes in population affect both the consumptionneeds and the productive capacity of an economy

If there are inputs to production other than labor,then adding one person adds one mouth and one pair

of hands but no more of the other factors. In percapita terms, more people will result in less ofeverything else

In some contexts the size of the population is

important (fixed natural resources), whereas in othersthe growth rate is (producible input such as capital)




4-3

Figure 4.1 Relationship Between Income per

Capita and Population Growth

Strongnegativecorrelation

Causalitymay run inbothdirections orthey are noteven

directlyrelated atall




4-4

Figure 4.2 World Population, 10,000 B.C.

to A.D. 2010

Only in thelast twocenturiesliving

standardshavesignificantlyimprovedandpopulation

growthsignificantlyincreased

10,000 B.C. –0: 0.04% peryear

0 – 1800:

0.09%

1800 - 1900:0.06%

1900 - 1950:0.09%

1950 - 2000:1.8%




The Malthusian model

Thomas Malthus (1766-1834): Essay on the principle of population published in 1798

Humans, given the right circumstances, can breed at aprodigious rate

The force that limited human population is the limitedquantity of available resources – in particular, land

Eventually, society would reach a level of incomecommensurate with constant population

Although animals and plants are limited only by limitationson resources, humans are subject to a second limitation:deliberate reduction of fertility to prevent poverty




4-6

Figure 4.3 The Malthusian Model

The steady state isstable: no matter what acountry’s initial level ofpopulation, it will end upat the steady state




4-7

Figure 4.4 Effect of Productivity Improvement

in the Malthusian Model

Suppose there is someadvance in productivity– for example, theintroduction of irrigationor the arrival of a newcrop – that raises thequantity of food that canbe grown on a givenamount of land; orsuppose that new land

(without people) isdiscovered

Over time, people who arebetter off will produce morechildren, the large numberof people will dilute thebenefits of the newtechnology or land

Population will continue togrow until the standard ofliving has returned to itsold level (zero populationgrowth)

Better technology or moreland, then, will not lead tohealthier, happier people,

just to more of them




4-8

Figure 4.5 Effect of “Moral Restraint” in the

Malthusian Model

Implication of theMalthusian model(higher productivity →more people) accords

with economic history(e.g. potato fromAmerica to Ireland:population tripled)

Malthus: «moralrestraint» in preventingbirths the only way toraise standard of living




The breakdown of the Malthusianmodel

The Malthusian model (constant standard of living)clearly does not apply to the world today

Evidence that the model has broken down comesfrom living standards: over the last two centuriesliving standards have risen in much of the world

The richest countries in the world have the lowestrates of population growth

Growth in income has been possible becausetechnological progress has been rapid enough to

compensate for falling levels of natural resources percapita




4-10

Figure 4.6 Breakdown of the Malthusian

Model in Western Europe

As Europe gotricher, itspopulationgrew at anunprecedente

d pace

Economicgrowthoutstrippedpopulation

growth,income percapita rose

Over the nextseveraldecades, thedepartureform the

Malthusianmodel is evenmore dramatic(negativepopulationgrowth for

many WesternEuropeancountries)




Population growth and capitaldilution

If the quantity of capital does not change, then the populationgrowth would result in less capital being available for eachworker → capital dilution

Δ () To incorporate capital dilution into this equation

Δ ( + )

2

Dilution resulting from the arrival of new workers operates in

exactly the same manner as depreciation

Steady state: ( + )




4-12

Figure 4.7 The Solow Model Incorporating

Population Growth

Higher population

growth dilutes theper-worker capitalstock more quicklyand so lowers thesteady-state level ofoutput per worker




A quantitative analysis

Assume a Cobb-Douglas production function: Steady state

+

+

1 (1−)

() 1 (1−) +

(1−)

+

+

(1−)

This factor alone does not explain all of the income differences




Explaining population growth

Malthusian model treats population as an endogenousvariable – something determined within the model

Solow model treats population growth as exogenous

Demographic transition: process by which a country’s

demographic (population) characteristics aretransformed as it develops

The changes in population growth result from theinteraction of changing patterns of death and birth –that is, a mortality transition and a fertility transition

Demographic transition is largely complete in therichest countries, it is ongoing in developing countries




Total fertility rate, life expectancy,and net rate of reproduction

Demographers study mortality by constructing asurvivorship function: probability that a person will bealive at different ages, ()

The survivorship function starts at a value of 1 at the

moment of birth and declines to reach a value of 0 The highest mortality in preindustrial societies

occurred in infancy and childhood. It is at theseyoung ages that the greatest improvement inmortality have taken place




Figure 4.13 The Survivorship Function for

Women in Sweden





Life expectancy at birth: average number of years that anewborn baby can be expected to live

ℎ =0

()

Graphically, it is the area under () (survivorship f.)

Age-specific fertility rate: average number of children thatwomen of a given age will bear in a given year, ()

Total fertility rate (TFR): number of children that a woman wouldhave if she lived through all of her childbearing years andexperienced the current age-specific fertility rates at each age

=0

() Graphically, TFR is the area under ()




Figure 4.14 Age-Specific Fertility Rates





Combining () and (), we calculate the expected numberof children that a newborn girl will produce at each age

Adding up these expected children for all the possiblechildbearing ages, we can calculate the expected numberof children that a newborn girl will produce over her life

Fraction of live births that are girls (): slightly < 50%

Net rate of reproduction (NRR): number of daughters thateach girl who is born can be expected to give birth to

=0

()()




4-20

Figure 4.8 Life Expectancy in Developed

Countries

The decline intheprevalence ofdeath over

the last twocenturies hasbeen one ofthe mostremarkabletransformatio

n in humanhistory

As withincome percapita, there

was little ornoimprovementin lifeexpectancybefore 18th

century




4-21

Figure 4.9 Life Expectancy in Developing

Countries

The mortalitytransition inthe

developingworld hasbeen muchmore rapidthan in thedevelopedworld

The mortalitytransition inthedeveloping

world hasoccurred at alevel ofincome percapita farbelow in the

rich countries




Explaining the mortalitytransition

Reduced mortality has resulted form1. improvements in the standard of living: quantity and

quality of food, housing, washing of clothes

2. improvements in public health measures: cleanwater/food, draining of mosquito-infested swamp

3. medical treatments in curing diseases

In the countries that experienced economic developmentfirst, improvements in mortality took place more or lessone at a time: 1 → 2 → 3

Advances almost all at once explain the rapid declines inmortality in the developing world




4-23

Figure 4.10 Total Fertility Rate in the United

States, 1860 –2008

TFR:number ofchildren awomanwould havethrough all

of herchildbearingyears,experiencing age-specific

fertilityrates ateach age

Temporaryinterruptionin thedownwardtrend:postwar

baby boom

Fertility inthedevelopingworld

compressedinto muchless time




4-24

Figure 4.11 Fertility, Mortality, and the Net

Rate of Reproduction in Sweden

NRR: number ofdaughters eachgirl who is borncan be expectedto give birth to,

assuming thatshe goesthrough her lifewith themortality andfertility of the

currentpopulation

NRR: factor bywhich the numberof girls increasesin eachgeneration, if = 1population

constant

In the developingworld mortalityhas declinedfaster than

fertility (transitionnot completed) →larger NRR




4-25

Table 4.1 Demographic Data for India




4-26

Table 4.2 Demographic Data for Nigeria

l i i h f ili i i




Explaining the fertility transition

Explaining the mortality transition is relatively easy.As people grew richer, they consumed more food andhousing, enabling them to live longer; societiesadopted new techniques for reducing disease whenthose techniques became available

Like good health and long life, children are generallyconsidered desirable. Why, as a country gets richer,do its citizens choose to have fewer children?

Children are not like most other goods, people may

not always have the number of children they want

R d d f ili h




Reduced fertility: the means

Malthus: unless passion between the sexes could besuppressed, the human race was doomed to breeditself into poverty

Before, the Bible mentions (and condemns) the use of

withdrawals to avoid conception A number of cultures have practiced infanticide to

control family size: the Greeks «exposed» childrenwho were the products of rape or adulterous unions,abandonment of children continued in Europe into the

19th century encouraged by the Catholic Church’spolicy of taking in foundlings that succumbed

R d d f tilit th




Reduced fertility: the means

In Northern Europe before the industrial revolution, apattern of relatively late marriage served to reducefertility; in many cultures, a long period of breast-feedinghas suppressed fertility

Over the last two centuries, the technology of fertilitycontrol has improved markedly

Dramatic shift in the attitudes of society, and particularlygovernment, toward fertility control

In the developing world, the post-WWII period has seengreatly increased concern about the consequences of rapidpopulation growth and policies for fertility restriction

Effects of family-planning programs explain 10-40% of thedecline in fertility in the developing world; the rest of thedecline is explained by changes in desired fertility

F il l i d




Family-planning programs andtheir effects

China’s «one child» policy initiated in 1979: higher wagesand preferential treatment in housing, social obligation feefor those who had more children; duty to enforce familyplanning even incorporated into the Chinese constitution

India during the 1970s: forcible sterilizations on people on

the street for a transistor radio as a reward Mexico since 1974: broadcast the jingle «small families live

better»; in India «We two ours one»

Indonesia in the 1970s and 1980s: distribution of freecontraceptives and educational materials, back of the five-

rupiah coin displayed a two-child family with the message«family planning: the way to prosperity», at five p.m.sirens to remind women to take their birth-control pills

Fi 4 12 D i d F tilit T t l




4-31

Figure 4.12 Desired Fertility versus Total

Fertility Rate in Developing Countries

Thebiggestcontributor

todifferencesin fertilityis women’sdesiredfertilityitself

Desiredfertilitymeasuredby askingwomentheir idealfamilysize

Actualfertility ishigher

thandesired

Red ced fe tilit the moti es




Reduced fertility: the motives

1974 UN conference: development is the bestcontraceptive

Families care not about the number of children who areborn but about the number who survive to adulthood; asmortality falls, same number of surviving adults with lowerfertility

When mortality is high, parents have more children than isnecessary as a form of insurance of survival

When a country’s income rises the opportunity cost ofparent’s time demanded by children also rises (income andsubstitution effect); income is also the price of children

Furthermore, relative wages and also education of women,who tend to do most child-rearing, rise






As a country develops, the economic benefits of childrenfall while the cost of raising children rises

In developing countries, children can be productive at ayoung age by doing simple tasks around the farm, childrenprovide for their parents in old age

In developed countries, children do not work and costs foreducation continue into the third decade of the child’s life,financial markets and social security provide for elders

Investment in child quality for a likelier support in old age,because children’s happiness makes parents happier

If many children die before adulthood, parents arereluctant to spend too much on care/education of child

Documents

research methods in macroecon