POPULATION AND ECONOMIC GROWTH

Explain and critically assess the theoretical and empirical relationship between population and economic growth

Explain And Critically Assess The Theoretical And Empirical Relationship Between Population And Economic Growth

Introduction

The issue of population and economic growth is as old as economics itself. Malthus (1798) claimed that there is a tendency for the population growth rate to surpass the production growth rate because population increases at a geometrical rate while production increases at an arithmetic rate. Thus, the unfettered population growth in a country could plunge it into acute poverty. However, the pessimist view has proven unfounded for developed economies in that they managed to achieve a high level of economic growth and thus, both population and the real gross domestic product (GDP) per capita were able to increase (Meier 1995, p. 276).1 The debate between positive and negative sides of population growth is ongoing. Population growth enlarges labour force and, therefore, increases economic growth. A large population also provides a large domestic market for the economy. Moreover, population growth encourages competition, which induces technological advancements and innovations. Nevertheless, a large population growth is not only associated with food problem but also imposes constraints on the development of savings, foreign exchange and human resources (Meier 1995). Generally, there is no consensus whether population growth is beneficial or detrimental to economic growth in developing economies. Moreover, empirical evidence on the matter for developing economies is relatively limited.

The issue of population and economic growth is also closely related to the issue of minimum wage. Population growth enlarges labour force and, therefore, will push wage down. The standard economic labour demand model predicts that low wage will raise the demand for labour. As a result, the welfare of the economy is likely to increase. Moreover, low wage would encourage industries that are labour intensive. Low wage is said to be an important factor that has contributed to the industrialization of Asian newly industrialized economies (NIEs), namely Korea, Hong Kong, Taiwan, and Singapore. Moreover, it is also argued to be an important factor that contributes to economic growth in China. Conversely, the standard economic labour demand model predicts that the introduction or rising of minimum wage will break the mechanism, i.e., there would be no link between population and economic growth. Nonetheless, a range of monopsony, efficiency wage, and search models shows that in some circumstances minimum wage could indeed raise employment. The empirical evidence on the matter is mixed, with some studies showing negative effects and others showing positive or zero effects of minimum wage. Thus, there is no clear relationship between population and economic growth. Nevertheless, the studies regarding minimum wage and employment are conducted mainly for developed economies (Stewart 2004, p. Cl 10; Rama 2001; Warr 2004).

The relationship between population and economic growth is complex and the historical evidence is ambiguous, particularly concerning the causes and impacts (Thirlwall 1994, p. 143)?2 Becker, Glaeser, and Murphy (1999, p. 149) demonstrated in a theoretical model that a large population growth could ...