The effect of population growth on per capita GDP growth is negative in developing countries | Minh Quang Dao

Highlights (Freely quoted and adapted by Job Market Monitor)

The study empirically examines the impact of the various dimensions of the demographic transition on per capita GDP growth in developing countries. 

Economists have often neglected the impact of fundamental demographic processes on economic growth. Bloom and Canning are among the few who explore the effect of the demographic transition on economic growth. They argue that it is possible that the interaction of economic growth with population dynamics can result in a poverty trap. Consider two clubs: one with low income and high population growth rates, while the other with high income and low population growth rates. While transition between these clubs may be rare, they are able to show that when it does happen, it does so very quickly, due to the positive feedbacks between growth and the demographic transition.

More recently, Dyson (2010) claims that mortality decline aids economic growth and hence leads to an increase in the standard of living. As people live longer, they tend to think more about the future and are more likely to take risk and innovate. For instance, Bloom and Canning (2001) and Kalemli-Ozcan (2002) find evidence in developing countries that mortality decline has the tendency to raise educational attainment and savings rates and thus to increase investment in both physical and human capital.

In addition to mortality decline, Dyson (2010) has identified population growth, fertility and age-structural change as well as urban growth/urbanization as demographic factors that affect economic growth.

Based on data from the World Bank and using a sample of forty-three developing economies, the author finds that the growth rate of per capita GDP is linearly dependent upon population growth, both the young and old dependency ratios, the mortality rate. Using interaction variables in light of the severe degree of multicollinearity among explanatory variables, the author also find that per capita GDP growth linearly depends on population growth, the old dependency ratio, the mortality rate, and the interactions between population growth and both the young and old dependency ratios, between population growth and whether or not the rate of population growth is less than 1.2 percent per year, and the interaction term between the young dependency ratio and whether or not the rate of population growth is less than 1.2 percent per year.

The effect of population growth on per capita GDP growth is linear and everywhere negative. It is stronger when interaction terms are included in the statistical model. Governments in developing countries can influence population growth in order to stimulate growth. China provides a clear example by suddenly introducing a collection of highly coercive methods to reduce the total fertility rate from about 5.8 to 2.2 births per woman between 1970 and 1980.

Since a decline in fertility affects the age structure of the population of a developing country, it is found to have no significant statistical impact on economic growth when both the young and old dependency ratios are included in the model. The effect of the old dependency ratio on per capita GDP growth is always negative and stronger when interaction terms are included in the model.

On the other hand, the interactions between the young dependency ratio and population growth and whether or not the average annual population growth rate is less than 1.2 percent exert a positive influence on economic growth.

Neither the level of urbanization nor urban growth has a statistically significant impact on per capita GDP growth. This result may be due to the fact that these two dimensions of the demographic transition exert positive and negative effects on economic growth and these effects are self-cancelling.

Read more @ Population And Economic Growth In Developping Countries | Minh Quang Dao